TORONTO - The Canadian dollar continued its surge against the American dollar Tuesday -- joining the euro which neared its record high against the greenback -- as worries intensified about stagflation in the United States.
The loonie was up 1.32 cents to 101.80 cents US at midafternoon, after gaining 1.67 cents Tuesday. The three-cent rise in two days left the currency at two-month highs; the last time the loonie closed over 101 cents was Dec. 28, when it ended at 101.99 cents.
The euro, meanwhile, stopped just short of its all-time high, peaking at $1.4948 as selling of U.S. dollars continued amid expectations of further interest rate cuts by the U.S. Federal Reserve, and in the face of a rash of negative economic data.
The U.S. Labour Department reported wholesale prices rose in January at the hottest pace in 16 years, jolting up one per cent, more than double the 0.4 per cent rise economists were expecting.
At the same time, the U.S. Conference Board's consumer confidence index slumped to 75.0, down from 87.3 in January, betraying widening anxiety about economic prospects and job security.
This anxiety has been stoked by falling home prices, and new data showed an 8.9 per cent home-price decline in the October-December period. It was the steepest drop in the 20-year history of the Standard & Poor's/Case Shiller home price index.
And research firm RealtyTrac said the number of U.S. homes facing foreclosure in January was 57 per cent higher than a year earlier.
Federal Reserve chairman Ben Bernanke presents his monetary policy report to Congress on Wednesday, facing rising concern about the possibility of U.S. stagflation -- overall stagnation coupled with rising prices.
On the Canadian front, Bank of Canada deputy governor John Murray told the Commons industry committee that the bank considers the economy as a whole when it sets short-term interest rates, indicating that the travails of hard-pressed manufacturers and other exporters won't by themselves prompt a rate cut. Murray also noted that a strong Canadian dollar helps productivity by reducing the cost of imported machinery.
This came just before the federal budget, which is expected to maintain a solid surplus, in contrast to America's deepening fiscal hole.
