Flaherty says weak U.S. dollar pressures Canadian dollar

Fri Jan 15, 2010 1:54pm EST
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By Ka Ya Ng

TORONTO (Reuters) - Lingering concerns about the state of the U.S. economy have put upward pressure on the Canadian dollar, Finance Minister Jim Flaherty said on Friday as the currency hovered near a three-month high.

The strength of the loonie, so called because of the bird engraved on the dollar coin, has slowed down Canada's economic recovery from a deep slump and policymakers fear a sudden jump to parity with the U.S. dollar could wipe out the economic gains of the past few months altogether.

The United States, where Canada ships about three-quarters of its exports, is largely to blame, Flaherty said.

"The U.S. is running a very substantial deficit. There are concerns still in the U.S. with respect to the housing market, the unemployment numbers are relatively high in the United States, and I know that they remain concerned about ensuring that there is an entrenched recovery," he told reporters in Toronto after a speech.

"So that places upward pressures on the other market currencies like the Canadian dollar and the Australian dollar," he said.

Even though the U.S. dollar rose broadly on Friday against other major currencies, its relative weakness is now a fact of life, Flaherty said.

"We always worry about fluctuations in the dollar that are volatile, but I think the reality is that we're going to be faced with a relatively weak U.S. dollar."

After touching a three-year high on Thursday of C$1.0225 to the U.S. dollar, or 97.80 U.S. cents, the Canadian currency retreated a bit on Friday. At about 1:30 p.m. (1830 GMT) it traded at C$1.0296 to the U.S. dollar, or 97.13 U.S. cents.   Continued...