FIND­ING THE PER­FECT BAL­ANCE

The price of oil and the Canadian dollar are now in­ex­tri­ca­bly linked, which means nei­ther can please ev­ery­one

National Post (Latest Edition) - Financial Post Magazine - - CONTENTS - By David Pett

The price of oil and the Canadian dollar are now in­ex­tri­ca­bly linked, which means nei­ther can please ev­ery­one.

SAtrik­ing the per­fect bal­ance is one of life’s most en­dur­ing pur­suits. It is cen­tral to many of the world’s great re­li­gions and plays an in­te­gral part in the daily de­ci­sions we make and the re­la­tion­ships we form. Even our folk tales and fa­bles are of­ten about its achieve­ment, but while Goldilocks found a suit­able meal and com­fort­able bed quickly enough in her story, find­ing equi­lib­rium in the real world can prove to be a far harder task.

Cana­di­ans have learned that les­son all too well so far this decade, par­tic­u­larly those with a vested in­ter­est in the econ­omy and its grow­ing de­pen­dence on the in­ter­play be­tween oil prices and the loonie. Both have dropped in dra­matic lock­step over the past year, but just how bad the fall has been largely de­pends on whom you ask.

Folks in Al­berta are rightly anx­ious about crude’s 50% de­scent to a low of US$43 a bar­rel in March from above US$100 last June. At the lat­ter price, the prov­ince’s econ­omy was hum­ming along just fine, but even at cur­rent lev­els closer to US$58, oil-sands pro­duc­ers are barely break­ing even and the fall­out from cap­i­tal-spend­ing cut­backs and job losses is al­ready be­ing felt by the prov­ince’s econ­omy.

Res­i­dents in prov­inces that are more re­liant on man­u­fac­tur­ing and tourism, how­ever, have fewer qualms about plum­met­ing oil prices and a less-than-sparkling loonie. Fol­low­ing a few years of com­plain­ing about the Canadian dollar be­ing near or at par with the U.S. dollar, they are likely re­lieved by the swoon in the loonie to a re­cent low of US78¢ be­cause it makes goods man­u­fac­tured in the coun­try more at­trac­tive on the ex­port mar­ket, and turns Canada into a more en­tic­ing des­ti­na­tion for for­eign trav­ellers.

Clearly, the ebb and flow of oil prices and our petrocur­rency helps cre­ate im­bal­ances across the coun­try, which begs some ques­tions: What level for each would cre­ate a bet­ter bal­anced econ­omy? And, even more im­por­tantly, are those lev­els even achiev­able?

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