The Canadian case for a weak dollar

From a report sent out this morning by Merrill Lynch North American economist David Rosenberg (who is Canadian):

We don’t seem to recall that the economy or market backdrop in Canada (and New Zealand or Australia for that matter) were being severely damaged when the Canadian dollar (the loonie) endured its multi-year downward adjustment through most of the 1990s. The chronic doomsayers over the US dollar should make an attempt at understanding that this is not about Ben Bernanke–it’s about the balance of payments backdrop and the reality is that currency depreciation has been and always will be one mode of adjustment in terms of redressing large-scale current account deficits.

While the loonie plummeted against the dollar between 1992 to 2002, Rosenberg says, inflation in Canada declined from 4.5% to 1.3%, the short term interest rate set by the Bank of Canada dropped from 7% to 3%, and ten-year bond yields dropped from 8% to 5%. Meanwhile, Canada’s huge current account deficits turned into surpluses. That doesn’t sound so bad, does it?

Apple CEO Cook Gives Up $75M in Stock Dividends

NEW YORK — Apple CEO Tim Cook is giving up $75 million in dividends on restricted stock that the company is awarding to all of its employees.

In a filing with the Securities and Exchange Commission on Thursday, Apple Inc. said that Cook requested that his restricted stock units not receive dividends. The dividends that Apple workers are getting amount to $2.65 per quarter for each restricted stock unit held. The shares are not normally eligible to receive dividends, so Apple’s decision is a perk for its employees.

p_lukasiak

Meanwhile, Canada’s huge current account deficits turned into surpluses. That doesn’t sound so bad, does it?

I would suggest that the change in Canada’s current accounts had little or nothing to do with the weakness of the Canadian dollar. Instead I would point to increased exports of raw materials — for instance, between 1990 and 1999, canada (slightly) more than doubled its oil exports (from 294,000 barrels/day to 603,000 barrels/day). And suspect that the same went for much of the rest of Canada’s mineral wealth; as demand for raw materials increased as economic expansion occurred (especially in Canada’s primary export market, the USA), Canada met that demand.

The US doesn’t really have that much in raw materials available for export, even with a weaker dollar. (We sure don’t have the oil reserves)….
p_lukasiak

oops, forgot the link to the Canadian oil export data… http://www.eia.doe.gov/emeu/cabs/Canada/Oil.html (click on the first chart for the data itself)