Low loonie is a boon for Canadian exporters

08/02/2016

Low loonie boon for Canadian exporters

Low loonie boon for Canadian exporters

In January, the Canadian dollar fell to the lowest level seen since spring of 2003, settling at around 70 Canadian cents to the U.S. dollar.

The Bank of Canada has continuously lowered the interest rate, as part of a bid to redistribute the economic pain from low oil prices and bottom-level commodity prices to other regions and sectors of the economy.

The sharp drop in the dollar’s value has had a demonstrable impact on the Canadian economy, most notably in international trade.

Natural resources benefiting from payment in U.S. dollars

Broadly speaking, any product manufactured or produced in Canadian dollars and sold abroad, especially in the U.S. market, has benefitted.  However, industries relying on U.S. imports at any point in their business have been stung by unfriendly economics.

At the moment, natural resources being exported to the U.S. are receiving an unexpected boon.

This includes forestry products, energy products – including oil – and minerals and metals products.

The economics are easy to grasp: if natural resources are produced, excavated, and refined in Canada, using Canadian equipment and employees, the costs of production remain the same.

Once these are sold in U.S. dollars – which all metal commodities are priced in, as a default – then the economic rewards for Canadian producers are higher.

Another unexpected boon from the low loonie is the sale of used Canadian cars to U.S. buyers. According to a report from Desrosiers Automotive Consultants, nearly 200,000 used cars were exported from Canada to the U.S. in 2015.

Sales of used Canadian vehicles to American consumers are at their highest levels since 2002, and are substantially higher than the roughly 75,000 used cars sent to the American market in 2014, the report said.

However, the focus on the American market is constraining the availability of used vehicles for Canadian consumers, which drive up prices for used cars in the Canadian market.

Cooling dollar makes Canada a hot destination

Another winning industry in the loonie downturn is travel, with foreigners, particularly Americans, flocking to Canadian tourist attractions to take advantage of a favorable foreign exchange rate.

Because the Canadian dollar is so weak, many Canadians are opting to forego international travel – and may increase the amount of travelers to these Canadian sites.

Canada’s geographic position is a major boost for its economy, as it sits atop the country which arguably has the best performing economy in the developed world at the moment. This reality has softened the blow of the falling dollar, and made it possible for export-oriented industries to continue to thrive.

Canadian manufacturers urged to source locally

Canadian companies suffering from the shift in the Canadian dollar are those which rely on U.S. imports for any part of their supply chain, either in securing parts for their manufactured products or relying on raw materials only available from the U.S.

Canadian economists have advised Canadian companies to aim for all their value chain to be based in Canada as much as possible.

One major drawback for Canadian households as the loonie drops is the cost of fresh fruits of vegetables, largely sourced from California, Florida, and other warm-weather climes.

The price of fruits and vegetables climbed by roughly 10% in 2015, and are slated to go up by as much as 4.5% this year, according to a report from the University of Guelph’s Food Institute.

Headlines in the last few weeks have focused on the increases to cauliflower prices in particular, which are driven skyward not only by the poor exchange rate, but also because of the shortage in the cauliflower crop this year.

High food prices will cut into the budgets of Canadian households, and even more so for those living in the north – where food prices were already sky-high due to high transport costs.

Canadian officials warn that the working poor, students, and senior citizens are likely to suffer most from these price changes.

Has the drooping Canadian dollar affected your business? What are you doing to protect from currency fluctuations like this?

Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

About the author

Author: Jacqueline Côté

I am a working journalist, with experience as SNL Financial’s Canadian correspondent for its Mining and Metals vertical. I also served as the Managing Editor for Central Asia Newswire – covering daily economic and investment news in the region – as well as Features Editor for the Washington-based Magharebia.com, which covers developments in the North Africa region. I have been published in The Montreal Gazette, The Guardian (UK), The New Statesman (UK), Red Pepper (UK), Geopolitical Monitor and CNN.com.

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