(September 3 – 12:00 ET) – Lower taxes as the only relief for a wimpy loonie, says CIBC World Markets chief economist Jeff Rubin.
Canada’s fortunes are conventionally thought to depend directly on world commodity prices, yet recent commodity price improvements have done nothing to rescue the flagging Canadian dollar. Rubin says that the problem is not the price of rocks and trees. It’s the fact that the Bank of Canada has doggedly kept our interest rates lower than the American rates.
“Ottawa wears negative interest rate spreads with the U.S. as a badge of honor,” says Rubin.
The reward for this honour is an anemic currency Rubin believes, and he contends the fed must do something to stimulate growth. A dollar that can’t top 67¢US with commodity prices rising is going to fall further when they slacken again, he says.
Rubin sees a 60¢US dollar in the next cyclical downturn, noting that the loonie has been the weakest G7 currency apart from the woeful Italian lira over the last decade.
The solution, aside from an upward move in rates, is tax cuts. He argues tax relief spurring domestic spending would defend the Canadian dollar in the next downturn. Without this sort of stimulus Rubin forsees the clamour for adoption of the U.S. dollar will grow in Canada. That’s a proposal he rejects.
-IE Staff
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