The Canadian Imperial Bank of Commerce's World Markets division released a report warning the Bank of Canada it risked "a hollowing out of the country's industrial base" by allowing the loonie to remain close to par with the U.S. dollar.
"If the loonie is overvalued for a few years, we may be sacrificing business plant and equipment on the altar of a strong currency." wrote CIBC Chief Economist Avery Shenfeld. "Plants that close because they are unprofitable at current exchange rates might permanently relocate elsewhere. They won't suddenly come back if currency later cheapens."
Earlier this month, the central bank said it wouldn't rule out intervention to lower the loonie's value. Shenfeld said in the release the institution shouldn't be timid.
"To those who say intervention never works, China has steered the yuan exactly as it pleases, while Swiss intervention earlier this year stopped the franc's appreciation against the euro dead in its tracks," he said. "Intervention is a powerful tool for those who opt to use it."
Early Tuesday, the Canadian dollar was trading near 94 cents to the U.S. dollar.
Copyright 2009 by United Press International.
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