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June 2, 2007

Canadians start to put that high loonie to work

Dramatic run-up in the dollar means business can now look for bargains




Mark Zilbert, a former Montrealer who now runs a real estate agency selling million-dollar condos in Miami Beach, is quite content that the U.S. dollar is tanking against the loonie.

He says the amount of business he's doing with Canadian clients is up about 20 per cent over the past six months.

"There's always a number of factors that influence the spurts in business that we see - interest rates, property taxes. Currency has definitely had a substantial impact on Miami real estate," said Mr. Zilbert, the 43-year-old president of Brown Harris Stevens | Zilbert - Zilbert International Realty - Zilbert Realty Group.

"When the dollar was doing very poorly, we saw our Canadian business just drop off. Everybody wanted to wait and see what happened," he said. "Clearly, a lot of Canadian buyers are taking advantage right now, and are starting to look around and shop."

They're even willing to book trips during the month of July to go condo shopping in Miami, something that Mr. Zilbert says he has rarely seen.

It's one example of how Canadian consumers and companies are digging into their pocket books to see whether they can take advantage of the high loonie.

"With the Canadian dollar as strong as it is, it's a bit like a gigantic sale sign going up," said Simon Nyilassy, the chief executive officer of Calloway Real Estate Investment Trust, which is in talks two retail centres in Oregon. "It will definitely encourage us to look at more," he said.

The favourable exchange rate isn't the largest factor that Calloway would consider as it weighs U.S. acquisitions, but it certainly helps, Mr. Nyilassy suggested.

Stephen Suske, the co-CEO of Chartwell Seniors Housing Real Estate Investment Trust, said the REIT is still digesting a recent acquisition. But, once that's done, it is very interested in expanding its U.S. platform and "the rise in the Canadian dollar, that is good for acquisitions."

Colin Walker, managing director at investment bank Crosbie & Co., suggested he doesn't expect Canadian firms to go on a full-blown shopping spree for major U.S. companies as a result of the higher loonie.

Most large acquisitions are made for strategic reasons, he said. "The truth is, I don't think people make acquisitions due to currency." Even if they did, there's an offsetting factor at the moment, Mr. Walker said. The government's decision to change the rules governing how companies can deduct interest on borrowings for foreign investments is causing Canadian companies to hold off on acquisitions, and that's outweighing the impact of the loonie, he said.

While the strong loonie has made machinery and equipment from the U.S. much more affordable, an economic report this week showed investment in machinery and equipment tumbled 6 per cent on an annualized basis in the quarter - the first drop in more than four years.

One bad quarter doesn't mean factories have stopped investing, cautioned Dale Orr, chief economist at Global Insight (Canada). Many manufacturers may have held off buying new equipment last year because back then the loonie was weakening.

"The relationship ... we've seen since 2003 between the exchange rate and imports of machinery and equipment, is consistent," he said. "The lags can be quite long."

The Canadian dollar closed yesterday at 94.22 cents (U.S.), up 0.73 cents from Thursday's close.

That came as Canadian Imperial Bank of Commerce became the first major bank to predict the currency would hit parity by the end of the year. Takeover talk, rising rates and higher commodity prices should propel the loonie, chief economist Jeff Rubin said. The last time the loonie traded at par was November, 1976.

The dollar's ride

What's driving the loonie higher?

The Canadian dollar traded at high as 94.32 cents (U.S.) yesterday, the highest point since July 25, 1977. It closed the day at 94.22 cents, up 0.73 of a cent.

The currency has been driven higher by a wave of takeover activity, rising commodity prices and, lately, expectations of rising interest rates. Its rise also reflects a general decline in the U.S. dollar as the United States suffers from a ballooning deficit. The loonie is now up a dramatic 43.4 per cent over the past five years.








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