Canadian Dollar Hits New Low of 69.56 U.S. Cents

The Canadian dollar fell to a record low Monday, dropping below 70 U.S. cents and igniting concerns that the nation’s currency is in a free-fall that will drive up already climbing interest rates and ignite a new inflationary cycle.

The Canadian currency, which had been worth 70.20 U.S. cents Friday, opened trading Monday at 69.84 cents, the first time it had fallen below the psychologically important 70-cent barrier. When trading ended in late afternoon, it had dropped to 69.56 U.S. cents.

Although Canada’s currency has been dropping steadily for years, the new rate shocked economists and sparked demands that the government in Ottawa take immediate steps to bolster the dollar’s value.

“It will have a shock value to people, and the dollar may be prone to fall all the more because an important barrier has been crossed,” said Ben Gestrin, chief economist at the Canadian Imperial Bank of Commerce here.

Criticism in Ottawa

“The day has been absolutely devastating,” said Jane Pizzo, vice president in charge of currency dealing at Deak Perrera here.

In Ottawa, the opposition Liberal and New Democratic parties demanded an emergency debate in Parliament on the currency, charging that the Progressive Conservative government of Prime Minister Brian Mulroney is failing to deal with what they claim is a serious economic crisis.

So far, Finance Minister Michael Wilson has refused to take any action to stop the fall of the dollar, which has lost nearly 6% of its value since September and has dropped a cent and a half against the U.S. dollar since Jan. 1. Wilson defended his policies Monday, saying that he is trying to moderate currency values without setting a specific level.

“We will try to moderate and stabilize the situation in the marketplace,” he told Parliament. “It’s really market forces that decide that final level.” Many analysts said, however, that the fall of the Canadian dollar is due to the failure of Mulroney’s government to cut its deficit, which stands at more than $24 billion (U.S.) and is nearly twice that of the United States in per-capita terms.

Rise in Interest Rates Seen

Analysts also voiced concern about probable increases in interest rates as the government’s Bank of Canada is expected to respond to the falling dollar by increasing rates for borrowing, already well above American levels.

The Bank of Canada charges 10.8% to commercial banks. The banks have set their prime rate at 11.5%, up half a percentage point from Friday.

Some analysts blamed the crisis on speculators in Chicago and on Canadian corporations trying to protect themselves from further drops in the dollar.

“I think what we’re having here is clearly a run on the currency” sparked by Chicago money traders, said Michael Manford, an economist with Merrill Lynch Canada. “It’s very clear that people are just ganging up on the (Canadian) dollar.”

Although Canada’s inflation rate has been stable at 4% over the last year, nearly all experts agreed that the current trend means higher costs for Canadians because the country imports huge amounts from the United States and Japan.