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Canadian Dollar Near Parity With US Dlr After Fed Rate Cut

TORONTO (AP)--The Canadian dollar hit a 30-year high Tuesday, rising almost 1 1/2 cents, after the U.S. Federal Reserve Board cut its key interest rate by half a percentage point.

Known as the loonie because of the bird pictured on the one-dollar coin, the Canadian dollar rose as high as 98.74 US cents in afternoon trading on financial markets in Toronto before ending the trading day at 98.64 US cents.

In New York trading, the U.S. dollar fell against the Canadian dollar to $1.0162 from $1.0279 Monday,

The loonie's swift approach to parity with the U.S. dollar left many analysts speculating that Canada's currency could surpass its American counterpart within a matter of days.

The loonie had begun to rise more moderately early Monday on speculation that the Fed would cut rates by a quarter point. But it really took flight in the afternoon after the U.S. central bank announced the rates would go down by a half point, double the anticipated cut.

The Bank of Canada, meanwhile, has kept its equivalent rates stable.

As a result, the spread between U.S. and Canadian rates has widened, making Canada a more attractive place for German, Japanese, U.S. and other foreign investors to put their money.

The soaring loonie also reflects the strong fundamentals of the Canadian economy, which has benefited from record world crude oil prices and strong demand for metals, coal, chemicals, grain and other farm products.

At the same time, the U.S. has been squeezed by a collapse of a big chunk of its housing market and a worsening credit crunch.

Canada's dollar hit an all-time low of 61.79 US cents on Jan. 21, 2002.

The high dollar will increase the number of cross-border shopping trips as Canadian consumers come to the U.S. to buy clothes, shoes and electronic gear.

But it will hurt Canadian manufacturers who sell goods in the U.S. Canadian Auto Workers economist Jim Stanford warned that the sector, largely based in Ontario, will lose hundreds of thousands more jobs if the dollar remains at current levels.

(END) Dow Jones Newswires

September 18, 2007 21:03 ET (01:03 GMT)


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