March 16, 2010 / 2:54 PM / 8 years ago

Flaherty signals less concern on strong dollar

LONDON (Reuters) - The Canadian dollar’s recent rally in part reflects the country’s healthy fiscal position, and does not suggest extraordinary volatility, finance minister Jim Flaherty said on Tuesday, appearing more relaxed with the currency’s sharp appreciation.

The Canadian dollar rallied to a 2010 high on Tuesday at C$1.0137 per U.S. dollar, its highest level since July 2008, as it edged closer to parity with the greenback.

But unlike last August when Flaherty suggested policymakers could take steps to halt the currency’s rise, he seemed unperturbed by the trend this time.

“If we see too much volatility, that’s difficult for businesses that export to deal with. So far we haven’t seen extraordinary volatility,” Flaherty told Reuters in an interview following a speech in London.

He earlier said that the currency’s rise was not just due to rising prices for Canada’s commodity exports or U.S. dollar weakness.

“There’s some upward pressure on the (Canadian) dollar, but it’s a market currency and we be believe in markets and when you believe in markets you have to let your currency float,” he told the UK-Canada Chamber of Commerce.

“To some extent Canada’s relatively strong fiscal position is assisting the rise in the Canadian dollar,” he added at a later press briefing following his speech.

The currency had been hovering near 20-month highs, but resumed its march higher on Tuesday amid firmer oil and equity prices as well as stronger-than-expected Canadian factory sales data.

Canada has fallen into a budget deficit after a decade of surpluses but its debt-to-GDP ratio remains the lowest in the Group of Seven major industrialized economies. Recent indicators such as trade, factory sales and employment data have shown the economic recovery is picking up pace.

Last year, a prolonged rally by the currency triggered expressions of concern from Flaherty and Bank of Canada Governor Mark Carney, who said the rise could hold back the country’s economic recovery.

But Flaherty’s recent remarks suggest a new level of comfort, and on Tuesday he repeated that currency strength could help drive Canadian productivity by boosting investment in imported machinery and IT equipment priced in U.S. dollars.


Flaherty, whose country chairs the Group of Eight industrialized countries this year, added that he was hopeful that China would see fit to allow more appreciation in its currency, as the global economy recovers.

“There was movement in the Chinese currency before the crisis. There has not been of late. The issue with China has not been whether the currency has been allowed to move but how much and how quickly. Given we are moving out of crisis, I think we will see a renewal of flexibility in that currency,” he said.

Flaherty also reiterated Ottawa’s opposition to taxing banks as part of reforms to the global financial system and spoke in favor of contingent capital and limits on debt levels and the need to enforce existing regulations as well as any new ones.

He urged the Group of 20 emerging and industrialized countries to keep up the momentum in the drive to reform the global financial system to prevent future crises.

“We continue to urge all G20 (countries) to seize opportunities available to us now as we see good signs of recovery,” he said.

However, he appeared doubtful that a clear consensus on regulatory reform would appear by the time of joint G8 and G20 meetings in Toronto at the end of June.

“I think it will be a work in progress quite frankly, but we will know better after we have the April meetings in Washington,” he told Reuters, referring to annual meetings of annual spring meetings of the International Monetary Fund and World Bank.

“I don’t know if we’ll get there in June, but everyone agrees that leverage rules are necessary. And I would hope that we’d get away from suggestions of some kinds of Tobin tax or something along those themes as that’s a non-starter for us.”

Flaherty also rejected U.S. proposals to break up banks deemed “too big to fail.”

“Issues like the concept of ‘too big to fail’ and ‘systemically important’ -- quite frankly our view is that these are not useful discussions, and at the end of the day that these concepts are not workable.” ($1=$1.02 Canadian)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below