Dollar at 30-Year Low Vs. Canada Dollar

AP
Dollar at 30-Year Low Vs. Canada Dollar
Thursday September 20, 12:13 pm ET
By Matt Moore, AP Business Writer Dollar Tumbles to Another Low Against the Euro and to 1-To-1 Parity With the Canadian Dollar

FRANKFURT, Germany (AP) -- The dollar took another fall on currency markets Thursday, reaching one-to-one parity against the Canadian dollar for the first time in 30 years and plumbing a new low against the 13-nation European currency.

The dramatic half-point cut in U.S. interest rates announced this week, while aimed at shoring up U.S. credit markets, also had the effect of further weakening the dollar versus other currencies by reducing the cash yield on dollars. A lower dollar can make travel more costly for U.S. residents and can also pose the risk of making imported goods more expensive over time.

The euro breached the $1.40 barrier against the dollar on Thursday. That level had long been seen as a key benchmark in terms of solidifying the euro's position on currency markets and giving it momentum toward becoming a reserve currency of choice -- a position long held by the now-weakening dollar.

The 13-nation euro bought as much as $1.4064 in morning trading in Europe before falling back slightly to $1.4040, above its previous high Wednesday night of $1.3987, and more than the $1.3964 it bought in late New York trading.

The dollar also fell against other currencies, reaching parity with the Canadian dollar for the first time since November 1976. One U.S. dollar now buys one Canadian dollar.

David Jones, chief market analyst at CMC Markets in London, said the euro's rise is not likely to abate in the coming days, given fears about another interest rate decrease in the United States.

In Washington, Federal Reserve Chairman Ben Bernanke told Congress that the credit crisis had created "significant market stress" and offered fresh assurances that regulators would take steps to curb fallout related to the mortgage mess.

Bernanke made the statement in testimony prepared for a hearing Thursday before the House Financial Services Committee. In his prepared testimony, Bernanke did not offer new clues about the Fed's next move on interest rates.

"I am sure we're going to see buyers moving in for the next target," Jones said, adding that he believes the euro will rise to $1.42 very soon.

"If not this week, it could be next week," he said. "People are using any weakness as a buying opportunity for euros."

Howard Archer, chief U.K. and European economist at Global Insight, said that $1.45 is a "serious possibility before the end of the year" because of the specter of more U.S. interest rate cuts.

"The Fed seems highly likely to cut U.S rates further, it now looks probable that the next move in U.K. interest rates will be down, while the ECB currently still retains a tightening bias," he said.

The euro's latest surge has come after the Fed lowered its key interest rate to 4.75 percent from 5.25 percent as it tries to keep the U.S. economy on track despite market turbulence from the subprime lending crisis. Most analysts had expected a quarter-point cut.

Lower interest rates, while used to jump-start the economy, can also weaken a currency by giving investors less return on investments denominated in the currency.

The European Central Bank kept its key rate unchanged at 4 percent earlier this month, backing off a planned increase in light of the subprime crisis and market volatility. Analysts are mixed on whether the bank will lift the rate in October.

The Bank of England meets next month, too, and is expected to keep its rate unchanged at 5.75 percent.

The rising euro has yet to cause great consternation among most of the 13 nations that share the euro, save for France, which has criticized its increase. As the euro rises it could dampen exports, particularly to the United States, making European-made products from automobiles to consumer appliances more expensive for American buyers.

On Thursday, Germany's finance ministry said the euro's strength meant that export growth in Europe's biggest economy had lost some of its vigor.

"The dynamism of exports is noticeably weaker than last year," the ministry said in its September monthly bulletin, citing the euro's appreciation against the dollar as a reason.

The dollar also fell against other currencies, dipping against the British pound to $2.0082 compared with $2.0025 late Wednesday, after U.K. retail sales in August rose by 0.6 percent from July.

The dollar slipped against the Japanese currency to 114.96 yen from 116.09 late Wednesday.

Associated Press writer Melissa Eddy in Berlin contributed to this report.

(This version CORRECTS to correct to decrease sted increase)