Currencies: Canadian Rescue Mission

Canadian tourists were suddenly thinking twice about vacations to Florida, while Americans were packing up for ski trips to the Laurentians, north of Montreal. Reason: the continuing decline of the Canadian dollar, which early last week fell below 70 American cents for the first time and hit a low point of 69.24 cents on Tuesday. Alarmed by the drop, the government-owned Bank of Canada intervened heavily in the currency markets, spending U.S. dollars to buy Canadian dollars in an effort to increase their value. By week's end Canada's dollar was back up to 71.07 cents.

The current weakness of the Canadian currency, which was worth 81 cents as recently as 1983, is somewhat enigmatic. The economy is growing at a healthy 4% annual pace, and inflation is only 4%. Falling oil prices may be one cause of the dollar's dip, but petroleum accounts for only about 5% of Canada's merchandise export revenues. Probably more damaging is the government's deficit, which was about $34 billion (Canadian) last year. To strengthen the dollar significantly, says Ben Gestrin, vice president of the Canadian Imperial Bank of Commerce, the government must prove that it will "pull its socks up." Translation: cut spending.