David Dodge has wisely spoken out against an overvalued Canadian currency in an effort to lower the trading value of the dollar from close to 1.03 US in the preceding days. His talk plus the slight decline in oil prices appears to have helped lower the trading value to 1.02 in yesterday`s trading.
However the effect was short lived by the close of trading today the dollar had recovered and was trading at 1.035. Oil prices at the same time had fallen to 85 dollars a barrel.
Thus it is clear that so long as Canadian interest rates remain as high as they are , still fighting rather mythical inflation, the dollar will continue to be a strong currency vis a vis the American dollar.
As a consequence Canadian manufacturing will continue to have trouble competing in the American market and will continue to move production offshore to cheaper wage areas in Asia.
A recent example of this is the shift of production from the Western Glove works jeans run from its plant in Winnipeg to Asia despite the high profile endorsement of Victoria Beckham of Spice Girl fame.(see Winnipeg no longer has Spice Girl in its jeans`Globe and Mail, October 23, 2007, p.B1) In this move some 100 jobs will be lost in Winnipeg because the firm has sub-contracted the production work to an Asian supplier. Once these jobs are lost they are difficult to re-establish because the necessary trained workers prefer to go elsewhere where there is greater security. Luckily the employment opportunities are better in Winnipeg and the West generally because there unemployment is low. But, of course, this is not the case in Ontario and Québec the manufacturing heartland of Canada.For this problem Dodge will eventually have to bite the bullet and lower interest rates or face a chronic problem of a high dollar and depressed manufacturing production in our manufacturing heartland.
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