Flaherty says rapid rise of dollar a concern

Fri May 29, 2009 2:38pm EDT
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By Jennifer Kwan

TORONTO (Reuters) - A rally in the Canadian dollar that took the currency to a seven-month high on Friday is being watched with concern, Canadian Finance Minister Jim Flaherty said.

"We're always concerned when there are fluctuations in the value of the Canadian dollar, and it has been relatively rapid in the past few weeks, and I know that the governor of the Bank of Canada is monitoring that as it's his job," he told reporters in Toronto.

The Canadian dollar edged lower following Flaherty's comments, weakening to as low as C$1.0937, or 91.43 U.S. cents, from around C$1.0910, or 91.66 U.S. cents just before. But it quickly recovered back to the earlier level.

The currency's flight is expected to be a challenge for the country's exporters, and some fear a move to parity with the U.S. dollar could delay or hinder Canada's economic recovery

Analysts say the dollar's rapid rise from four-year lows in early March is only partly explained by higher commodity prices and that an investor retreat from the greenback amid signs the worst of the global recession is over is also a factor.

Flaherty announced this week that he expects a budget deficit of over C$50 billion in 2009-10, up from an earlier estimate of C$33.7 billion.

Analysts have speculated that at least half of the additional C$16 billion may be explained by the government's planned auto bailout. Flaherty refused to comment on that when asked on Friday.

"We'll see as the (General Motors) discussions conclude in New York," Flaherty told reporters. "I hope an agreement is reached. An agreement has not been reached yet."   Continued...

<p>Finance Minister Jim Flaherty speaks to journalists in the foyer of the House of Commons on Parliament Hill in Ottawa May 26, 2009. REUTERS/Chris Wattie</p>