Canada Cuts Rates, Weakening Currency

Canada cut short-term interest rates Tuesday, a move that may make Hollywood executives happy--but not the rank-and-file workers in Hollywood.

The move weakened the Canadian dollar, which has been rallying strongly against the U.S. dollar since mid-March.

Between spring 1997 and mid-1998 it was the U.S. dollar that was on top, as its value soared against the Canadian currency--a boon for U.S. TV and movie studios that have moved a significant share of production north.

But expectations for a healthier Canadian economy, boosted by rising commodity prices, have turned the Canadian dollar from weakling to strongman in recent months.

One U.S. dollar bought $1.52 Canadian in mid-March. That had dropped to $1.447 by Monday, the lowest since May 1998.

But on Tuesday, after the Bank of Canada cut its benchmark lending rate a quarter-point to 4.75%, one effect was a weaker Canadian dollar again. It closed at $1.453 per U.S. dollar.

It was the fifth time in eight months that the central bank lowered its overnight lending rate to commercial banks in an effort to keep the economy growing.

The rate reduction is “slightly negative for the currency, temporarily,” said Randall Powley, a senior economist at Scotia Capital Markets.

Analysts said the Canadian dollar may be able to resume its rise if prices for oil, gas, timber and other commodities--which make up as much as 35% of Canadian exports--keep rising.

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Thinking Smarter

Led by new management, the Smart & Final chain of warehouse-style grocery stores is taking steps to bolster its sagging performance and stock price. Monthly closes and latest:

Tuesday: $10.56

Source: Bridge