October 21, 2009 / 8:25 PM / 8 years ago

Canada concerned by C$ rise; sees no strong growth

OTTAWA (Reuters) - Canadian Finance Minister Jim Flaherty said on Wednesday he shared the Bank of Canada’s concern about the sharp rise in the Canadian dollar, noting that entrenched economic growth had yet to take hold.

“I agree with the comments by the governor,” Flaherty told reporters, a day after the central bank said the currency’s strength had more than fully offset positive developments in the last three months. “He is concerned about volatility in the (Canadian) dollar.”

The Canadian dollar fell sharply on Tuesday after the bank’s announcement, but has since recovered some of that ground.

Flaherty did acknowledge some of the Canadian dollar’s strength was justified by higher commodity prices.

“Commodity prices, in particular oil, have gone up substantially in the past six to eight months. We’re seeing also some upward pressure on gas prices, also more recently, and commodities have something to do with the view of the dollar. We’re also seeing overall weakness in the U.S. dollar which is a concern,” he said.

But he added: “Our economy is stabilized but we have not seen evidence of firm, significant, entrenched economic growth in Canada.”

Financial authorities look carefully at whether a currency rise is caused by increased economic activity, in which case countervailing action should normally not be necessary.

“I think that we have our fundamentals in place in Canada and that they are strong. A concern of course is the performance of the American economy. This is not Australia,” Flaherty said.

He said Australia raised interest rates because its economy was growing in the range of 4 percent a year, based on close to 7 percent growth in China, its major trading partner.

“Our major partner is the United States and the United States economy is going through a very difficult time and has not yet shown signs of firm recovery,” he said.

This should not jeopardize Ottawa’s fiscal framework, however.

“I‘m satisfied with the approach that we’re taking. We have been reasonable in our expectations with respect to economic growth. We do not expect torrid recovery in Canada. We do expect a modest recovery over time. Our fundamentals are strong,” Flaherty said.

“We watch the dollar -- the Bank of Canada does and we do at Finance also -- because of the concern with volatility, because it makes it difficult for businesses to adjust. And the governor spoke to that yesterday,” he added.

Editing by Rob Wilson

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