VANCOUVER (Reuters) - Some of the Canadian dollar’s sharp climb is justified by fundamentals, but too rapid a rise could damage the country’s economic recovery, Prime Minister Stephen Harper said on Tuesday.
Canada’s dollar hit a 14-month high, putting it within striking distance of parity with a weakening U.S. dollar on Tuesday, but later relinquished some of the gains as the market’s appetite for risk waned.
The currency closed the session at C$1.0365 to the U.S. dollar, or 96.48 U.S. cents, up from C$1.0444 to the U.S. dollar, or 95.75 U.S. cents, at Friday’s close.
“Obviously, it is a concern,” Harper told reporters in Vancouver, noting in both English and French that Bank of Canada Governor Mark Carney had also worried about volatility in the currency.
The central bank has said it would not have to counteract rises in the Canadian dollar that are due to fundamental factors, and Harper said at least some of the increase was because of such economic strength.
“We know that Canada’s economy is relatively stronger than certainly virtually any other developed country, industrialized economy -- certainly stronger than all of the G7 economies and stronger than most in the developed world,” he said.
“And obviously some of these factors will have something to do with the rise of the (Canadian) dollar. That said, the governor of the Bank of Canada has been clear that too rapid a rise in the dollar is a risk to our recovery,” he added.
“As we said before, we’re not out of the woods. There are many risks, some of them within our control, some of them beyond our control, and obviously the value of the Canadian dollar is a risk to recovery. I don’t think it’s a risk to choking off the recovery but if it goes up too rapidly it does have difficult effects on our economy. So that’s why the governor has expressed those concerns.”
The Canadian dollar weakened when Harper expressed concern about the currency but then recovered somewhat when he said some of its rise could be explained by economic strength.
Harper was in Vancouver to announce federal spending to improve rail service through Vancouver’s port, which is Canada’s largest and the main transit point for the country’s trade with Asia.
Michael Ignatieff, leader of the main opposition Liberals, who was in Vancouver to announce green energy policies, said he was also concerned about the impact of a sharp rise in the currency on manufacturing.
The recent increase reflects both the Canadian dollar’s status as a “petro-currency” and the country’s record of financial management under previous Liberal governments, which produced regular budget surpluses.
“In a world where a lot of other countries have weak financial fundamentals I think that (Canada’s past fiscal management), then, has a currency effect,” Ignatieff said.
Ignatieff said the current situation demonstrated the need for Ottawa to be doing more to help exporters become more efficient to handle the pressure on trade due to the higher currency.
Reporting by Allan Dowd, Randall Palmer and David Ljunggren; editing by Rob Wilson