Loonie parity with US Dollar, PM Harper looks to partner with China

It has been extremely interesting week for the Canadian economy as a continued market resurgence coupled with the growing strength of the Canadian dollar has led to parity with the US dollar for the first time since April. It’s not a frequent occurrence and leads many industry leaders and observers to question whether it’s an overall positive thing for Canada. Importers who are still looking to replace stocks and fill inventories back to pre-recessionary levels will most likely jump at the opportunity to take advantage of the purchasing power afforded to Canadian business at present. On the other hand Canada needs a healthy export ratio to solidify the economic growth that has been seen over the last 12 months, any further weakening of the US dollar will make that a much more difficult task.

Meanwhile Canadian Prime Minister Stephen Harper is making a very voluble sales pitch to China, suggesting that their booming production economy becomes more reliant on Canadian energy to drive the growth onward. It’s being seen as a tactical move to encourage Chinese investment within Canada. The Prime Minister went to great lengths to explain the timing is right for both countries and that benefits will not be one-sided, positioning Canada is not just a good option for China but at present the ideal one. Referring to Canada’s strong position he said:

“…more and more …we are in a position to cooperate for our mutual benefit. China needs a stable source of energy to fuel its continuing growth; Canada is an emerging energy superpower. Chinese companies look for the best places to do business; Canada has low and falling tax rates, a low debt-to-GDP ratio, and an environment welcoming to foreign investment.”

His comments will spur mixed reactions in Canada, many feel that extending relationships with Chinese companies that are state owned houses many pitfalls which may override the benefits. The concerns centre around fears that free market rules will be disregarded and pricing driven down at a time when stability is of paramount importance.

The concerns have historically led to relatively low investment in real terms but Chinese state-owned firms in Canadian businesses overall although the energy sector is too attractive to have been waylaid in completely similar fashion thus far. With that said a reliable consumer is sought to partner in the costs associated with what will eventually be the huge undertaking of oil sourcing within Canada’s oil sands. Investment by the Chinese in Alberta’s oil sands region already stands at several billion dollars, so to a certain extent it could be viewed that the Prime Minister is trying to take the partnership to the next level.

Both stories will be fascinating to watch unfold in the months ahead.