The Canadian dollar continues to surprise me.  However, this column is not about the Canadian dollar.  Its rise into the 95-cent stratosphere has been well documented.  Where it will go next?  Nobody knows.  My hunch is…

I’m not going to say, at least right now.  However, I’ve been thinking about hunches this week.  My dismal scientist cousins manning the economic trenches have all kinds of ideas about our Canadian economy.  When it comes to hunches economists are the worst.  Put one on television and they think they are movie stars.

I’m saying this in front of the Bank of Canada announcement set for Tuesday which should see Bank of Canada governor David Dodge raise interest rates by a quarter percent.  I don’t want to see that.  I don’t want to see the currency go up with it.  I don’t want, I don’t want, I don’t want.  The problem is my hunch is saying everything else.  Our current economic train looks headed down the tracks to utopia.  Everything is pointing to higher economic growth, higher interest rates and yes an even higher dollar.

What you smoking Phil?  I’m sure some of you might be thinking that.  In southwestern Ontario we are reeling from the loss of manufacturing jobs along with the constantly fickle agricultural economy.  The high dollar makes things even worse.  However, Canada is a big country and our economic levers must push the Western Canadian buttons too.  Economic growth is exploding out west.  In some parts of Alberta, they say if you’ve got a pulse, you’ve got a job!

By the time you read this I’ll be back from an Albertan vacation.  It’s a great place to visit.  There is nothing like those mountains and I love that prairie too.  However, my economist eyes were looking for signs of that overheated Alberta economy.  Boy, did I get an eye full of that.

Simply put, there are jobs, jobs, jobs, jobs, everywhere.  In fact the many posted signs I saw said just that, jobs, jobs, jobs.  It’s an example of how hot the resource sector of the Canadian economy has become.  But there are issues, even with this prosperity.  The cost of living is rising in Alberta and other parts of Western Canada.  There is just too much money chasing too few resources.  At the end of the day that adds up to inflation.  David Dodge is obviously feeling the pressure to keep the lid on.

The problem is the Canadian economy is changing and now resembles two solitudes, the oil economy and the non-oil economy affected by the high Canadian dollar.  Trying to find a balance in this mix is very, very difficult.  Putting a lid on Albertan inflation before it spreads east is surely one of David Dodge’s biggest priorities.

The problem is sitting in Ontario its hard to see that.  In fact Ontario’s treasurer Greg Sorbara has made a very public pitch to the Bank of Canada to keep interest rates where they are.  Sorbara is obviously seeing an Ontario economy losing in this current interest rate/high Canadian dollar tug of war.  Dodge the pragmatist knows the price of Ontario going into the tank.  Even with a rate hike this week, I wouldn’t hold your breath for future hikes.

It’s all a very long and winding road.  I didn’t see it coming.  Last January 5th I finished speaking to the South West Agricultural Conference in Ridgetown after announcing to my audience that the loonie had actually broke under 85 cents US late that afternoon.  In fact I heard gasps in the crowd when I said it.  I would have been laughed out of the room if I’d said the loonie would turn around and hit 95.67 cents US six months later.  It’s truly unprecedented.

Having said that I’m not a gnat on your windshield.  I follow economics all the time.  I read differing opinions from domestic and international economists on a daily basis.  For the most part they all said the Canadian dollar would hit 82-78 cents US by Christmas.  Hmmmm.  Was that based on a hunch or will the next six months be as adventurous as the last?  I dunno.  However, its pretty obvious they didn’t know either.

So my hunch is that the Canadian dollar will go down within the next three months.  I cannot see it sustaining these values just based on the law of averages.  To scale these heights in a very short time is unsustainable.  When CIBC economist Jeffrey Rubin mused publicly about a par dollar by Christmas, I thought that to be one of the most reckless comments yet.  However, he’s paid more than me.  I still think the dollar will lose part of its steam.

For those of you taking cover (and there are lots of you especially on Ontario farms) keep the faith.  Almost every great economic thinker in Canada has joined the high dollar bandwagon.  That’s bound to mean a turnaround.  And don’t count out Bank of Canada’s David Dodge.  He might not do their bidding.  At the end of the day, if all else fails, we can all get on that bus to Alberta.  $18/hour for selling donuts doesn’t seem so bad.