Canada's forex tools are limited: Flaherty

Fri Sep 11, 2009 12:46pm EDT
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TORONTO (Reuters) - Finance Minister Jim Flaherty said on Friday that policymakers have only limited tools available to brake the sharp rise in the Canadian dollar against the U.S. dollar.

In unusually blunt comments, Flaherty told BNN television in an interview that the government and the Bank of Canada could work together to put pressure on the currency, which has surged nearly 21 percent since March, but he gave no indication he was willing to make such a move.

"The tools are limited and we've made that clear," Flaherty said. "We ought not to kid anyone about that."

"I've certainly made that clear. The governor of the Bank (of Canada) I think has made that clear. There are some tools that can be used by the bank in conjunction with Finance where we can act together in order to put some downward pressure on the dollar," he said.

A strong dollar hurts exporters, the backbone of the Canadian economy, because it makes their goods less price competitive and reduces gains on foreign exchange. Policymakers worry that the currency's appreciation could throw the economic recovery off track.

Flaherty said the strong currency may be a reflection of a comparatively healthy Canadian economy. "The reality is we have a strong fiscal situation in Canada and the fiscal situation in the United States is not strong," he said.

The Bank of Canada has suggested in recent remarks that at least part of the currency's rise has been unjustified and that it has considerable flexibility to act if needed.

On Thursday, the bank repeated that persistent strength in the currency is a risk to economic recovery. It suggested it could resort to unconventional policy measures, such as printing money, if necessary to lower its value.

The Canadian dollar was lifted on Friday by higher commodity prices, trading at about C$1.0750 to the U.S. dollar, or 93.02 U.S. cents, up from C$1.0783 to the U.S. dollar, or 92.74 U.S. cents, at Thursday's close.   Continued...