Paul Harris and Tracy Tjaden

The loonie's sizzling performance against a wobbly U.S. greenback is here to stay, predicts a former Bank of Canada governor.

And rather than lick the short-term wounds caused by a stronger Canadian dollar, B.C. exporters who are quickest to adjust to the new era will prosper.

"They should not count on the dollar coming down and rescuing them," said John Crow, who presided over the country's central bank in the late 1980s when interest rates topped out at 13 per cent. "They have to get more efficient because they're going to have to live with it."

If anything, there's further upside pressure on the Canadian dollar, Crow said during a recent interview in Vancouver.

"It won't go up another 30 per cent but well into the 80s is very likely," he said.

Here's what Crow says is making the loonie stronger:

  Prices paid for Canadian export commodities, such as copper, nickel, coal and lumber, are very strong, in part thanks to the voracious appetites of China and other Asian economies. This draws international investment into Canada, thus pushing up demand for the Canadian dollar.

  Sustained weakness of the U.S. dollar from a deficit that continues to skyrocket and a government that has provided scant fiscal policy to reduce it.

"The Democrats talk about restoring tax cuts on higher incomes and using the money to fund social programs, but where that leaves the deficit is pretty opaque," said Crow. "The Republicans almost deny that the deficit is at all relevant."

  Growing global confidence in Canada's fiscal performance. "People are more willing to put capital into Canada at the moment," said Crow.

He added that it's looking less likely that the Bank of Canada will increase rates again in December. It bumped them by a quarter point to 2.50 two weeks ago.

The Bank of Canada's current governor, David Dodge, will be monitoring the strength of the U.S. economy and how successful the Chinese are at reining in a surging economy that has been growing at over nine per cent annually.

Late last week China announced its first interest rate increase in the last nine years.

"If they're successful with that slowing, it will have an impact on commodity markets," said Crow, who was in Vancouver for meetings with Vancouver's First Associates Investments Inc. "I think industrial commodities have gone a bit far rather fast and a significant backing-off is coming."

And while it hurts in the short term, the strong loonie presents B.C. businesses with opportunities to invest in U.S. property, capital equipment and ways to pay down any U.S. dollar debt.

That's the message from analysts who suggest now is a good time - if they can afford it - for B.C. companies to leverage exchange rates that have pushed the Canadian dollar over the US$0.80 mark for the first time in over 10 years.

With B.C.'s economy overwhelmingly export-based, the weak U.S. dollar has a huge impact on the bottom line for companies shipping goods to the U.S.

Some Lower Mainland businesses view the exchange rate as an additional incentive to locate operations south of the border or upgrade technology sold in U.S. dollars.

"The higher dollar makes imports cheaper for capital equipment for mills, not only in the lumber sector, but in every industry," said Dan Schrier, trade and small business analyst at BC Stats. "This should be looked at as an opportunity for them to make these capital equipment purchases and make themselves more efficient and more competitive. There are also benefits to some of our retailers, in terms of a cheap supply of imports."

The rising loonie takes a bite out of profits, but B.C. exporters have been helped by the corresponding rise in the value of key products such as lumber.

Relative to August 2003, the value of B.C. exports was sharply higher this August - up around 17 per cent - the result of strong growth during the first five months of the year. The value of exports has since levelled off but remains well above 2003 levels, as is the case in other parts of Canada, according to provincial data.

In B.C., the year-over-year growth was mainly attributable to the value of forest products (up 24.7 per cent) and industrial goods (up 34.4 per cent) exports, but also reflects strong year-over-year increases for other commodities.

But, as B.C.'s exporters are acutely aware, the Canada-U.S. trading relationship does not exist in a vacuum. A weak U.S. dollar is viewed in some quarters of Europe and South America as the ideal time to introduce more products to U.S. consumers.

pharris@biv.com, tracy@biv.com