The good and the bad in Canada's strengthening dollar

Nov 24, 2004 | 09:29 AM |

The stronger Canadian dollar over the past year, due largely to weakness in its U.S. counterpart, has cut into the profit margins of the Canadian mining and metals sector, which generally receives payments in U.S. funds, but improved commodity prices have more than made up for the exchange rate, according to analysts.

The Canadian economy is in relatively much better financial shape than the United States, continuing to show current account surpluses while the U.S. deficit increases, currency analysts said.

"The strong Canadian dollar is squeezing the margins for Canadian mining companies," said Patricia Mohr, vice president of economics with Scotiabank in Toronto, although the negative impact is countered by high commodity prices.

While Canada's currency has gone up 33 percent in the past two years, the metals sub-index has increased by 70 percent, Mohr said. As a result, the situation isn't critical for metals companies, although the fabrication sector might be harder hit.....