5 October 2009

Canadian businesses should get used to foreign exchange volatility, Carney warns

The following article is extracted from the 4 October 2009 edition of “globeandmail.com”.

Bank of Canada Governor Mark Carney expressed concern with the level of volatility in foreign exchange markets, and warned that Canadian businesses may have to get used to being buffeted by gyrations in the value of the dollar for “some time.”

Mr. Carney, who has repeated since June that a stronger loonie risks snuffing out a fragile recovery, said currency values are jumping higher and sinking lower with uncommon pace because investors remain so uncertain about the state of the global economy. …

That volatility is expressed best through the U.S. dollar, which has fallen 14 per cent against a basket of seven currencies since early March,… The loonie, the euro and the Australian and New Zealand dollars have all appreciated against the dollar, causing anxiety for exporters who already are struggling to find markets in the aftermath of the global recession.

Mr. Carney and other policy makers at the central bank have sought to take some of the steam out of the loonie's rise by making clear that “persistent” strength will hurt growth and impede their attempt to meet their mandate to keep inflation advancing at about 2 per cent a year. The idea of the “jawboning” is to get speculators to think twice about making a one way bet on the loonie by
forcing traders to consider the risk the Bank of Canada could adopt policy that would make the Canadian dollar less attractive and cost them money. …

… [H]e did signal that businesses should get used to greater foreign exchange volatility. “There is a shift in global growth that is going on and is likely to persist for some time,” Mr. Carney said. “That requires hard thinking by Canadian businesses.”