July 26, 2011 / 6:53 PM / 6 years ago

Flaherty says loonie seen as safe bet

BURLINGTON, Ontario (Reuters) - The Canadian dollar, which shot up to a 3-1/2 year high on Tuesday, is attracting safe-haven investors and reflects the country's fiscal and economic health, Finance Minister Jim Flaherty said.

"Canada is a fiscally responsible country. Our currency value to some extent represents the stability of our country," Flaherty said in Burlington, Ontario, where he hosted a meeting of small-business people on Tuesday. "There are investors, obviously, around the world ... looking for safe havens and the Canadian dollar offers some attraction."

Flaherty also said he was "relatively confident" the United States would reach a debt ceiling agreement within the next few days.

He said the appreciation of the currency reflects Canada's fiscal prudence and strong prices for the commodities it exports.

The Canadian dollar climbed as high as C$0.9407 to the U.S. dollar, or $1.0630, on Tuesday before Flaherty spoke, its highest level since November 2007, when it hit a modern-day high.

There has been a huge influx of foreign cash into Canada's debt market recently as crises in Europe and United States have sent investors looking for safety, and that has helped drive up the currency.

Ottawa is always concerned about any rapid fluctuation in the value of the Canadian dollar, Flaherty said, but gave no hint that the Bank of Canada was concerned enough to intervene.

The Canadian dollar's recent rise has been more gradual than its rally immediately following the global financial crisis. In past episodes of abrupt appreciation, Flaherty mused openly about possible steps to slow the rise but he now appears more sanguine. In January, he said the strong Canadian dollar was here to stay and part of "a new world".

In 2009 the currency strengthened nearly 16 percent. It gained a further 5.7 percent last year and has gained about 5 percent so far this year.

"What we want to avoid, and it's fundamental now, is any shocks, any more shocks, in the world economy," Flaherty said.

CONSUMERS REDUCING DEBT

Flaherty said a consumer confidence report for July, released on Tuesday, pointed to reductions in the high levels of debt being taken on by consumers. The survey showed consumer confidence slipped for a third straight month and respondents said they were increasingly shying away from major purchases such as a home or car.

"There is some sense among some consumers that they control the amount of debt that they are carrying. This is a good thing," Flaherty said.

"It makes sense to me that Canadians would start making sure that their economic houses, fiscal houses are in order."

Flaherty said he is "relatively confident" the United States will reach an agreement to raise its debt ceiling by the August 2 deadline but made it clear he was very concerned about the financial fallout for Canada of any deterioration in the U.S. fiscal situation.

"It matters to us that our most important trading partner has their fiscal house in order," he said.

Reporting by Trish Nixon; writing by Louise Egan; editing by Rob Wilson and Peter Galloway

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