07/02/2014 02:48 EDT | Updated 07/02/2014 02:59 EDT

Loonie Hits 2014 High, Probably Freaking Out BoC, Exporters


The Canadian dollar reached its highest point in 2014 Wednesday morning, likely dismaying exporters and the Bank of Canada, who had been hoping for a weaker currency to boost exports.

The loonie hit 94.12 cents U.S. Wednesday morning, its highest point since Dec. 31, 2013, before sliding back down to around 93.75 cents U.S. by Monday afternoon.

The Toronto stock market racked up a new record Wedesday as well, amid a strong report about Canadian manufacturing and hopes for better job numbers out of the U.S.

The S&P/TSX composite index gained 69 points to 15,215 at midday. It passed its previous closing high of 15,109, set last week. Canadian traders also were optimistic about numbers released Tuesday, when the market was closed, showing an improvement in both Chinese and U.S. manufacturing.

After a long decline from above parity to around 90 cents U.S. earlier this year, the Canadian dollar has been seeing something of a rebound. That’s probably not good news from the Bank of Canada’s perspective. Many analysts say the bank has been working to talk down the loonie, in the hopes of spurring exports through a lower dollar.

It’s probably making the Bank of Canada incredibly uncomfortable, as well as exporters,” said Camilla Sutton, Scotiabank’s chief foreign exchange strategist, as quoted at the Globe and Mail.

She questioned whether a 94-cent loonie is sustainable, implying that the currency’s decline is likely to continue.

Analysts say strong prices for commodities have been pushing up the Canadian dollar, as has strong economic data from China, which also helps boost commodity prices.

Many international investors have been placing large bets against the loonie and against Canadian banks, on the belief that Canada is experiencing asset bubbles caused by years of very low interest rates and economic stimulus.

Many of these short bets have proved to be losers, as so far Canada’s bank profits have held up, and the loonie has not seen declines on the scale that some bearish investors were predicting.

One California hedge fund manager, who has bet heavily against the Canadian economy, has forecast a 70-cent loonie within five years. Other forecasts don’t see declines this large. Investment bank Goldman Sachs has called for the loonie to fall to around 88 cents U.S. this year.

With files from The Canadian Press

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