Loonie ascendant

17 September 2007 By Martin Hutchinson

The currency s inexorable rise shows Canada s economy is not to be sneered at. While poorer than the US, it doesn t suffer the imbalances. Canada has also become central to US oil security. Safe haven seekers should buy loonies, not dollars.

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The Canadian dollar rose above 97 cents for the first time in 30 years on September 14, closing at $0.9709, the strongest since February 1977; it has risen 2.5% against the US dollar on the week. Its low was $0.6176 in January 2002.

The Bank of Canada's benchmark interest rate is currently 4.5%; core inflation is 2.3%. Two year Canadian government bonds yielded 4.26% on September 14, 23 basis points above equivalent US Treasuries.

It is estimated that 66% of the world's oil reserves are preserved in tar sand form, with 34% (1.8tn barrels) in the Orinoco tar sands and 32% (1.7tn barrels) in the Alberta tar sands of Canada. Production of synthetic crude from the Alberta tar sands is currently around 1m barrels/day, around 5% of US total needs, at a production cost of about $28 per barrel. Current projects planned for the Canadian tar sands region total $100bn in capital investment.

Canada has a population of 33m, increasing 0.9% per annum. Its GDP was $1.09tn in 2006, increasing by 2.7%, or $35,600 per capita on a purchasing power parity basis. Its budget surplus is 0.2% of GDP, balance of payments surplus is 2% of GDP.

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