High Loonie Harms Canadian Exports

In September the Canuck dollar approached parity with U.S. currency, making business tougher for export-sensitive companies like those in Canada's manufacturing sector.

A number of factors conspired to trigger the rapid rise in the Canadian currency exchange rate, namely:

• the Fed's half-point cut in U.S. interest rates
• more competitive Canadian rates
• record oil prices
• international confidence in the Canadian economy to weather credit market turmoil.

The strong loonie makes Canadian exports more expensive on international trade markets. Most Canadian companies that depends on exports are experiencing slowing demand from their global trade customers. Partly hard hit are manufacturing firms in Central Ontario including Toronto.

Forestry companies like Tembec have had to temporarily halt its timber sales to foreign markets. Prices for Canadian lumber products are so depressed that, when combined with the double-whammy of the higher Canadian currency exchange, Tembec is losing money by exporting timber to the U.S.

Like most concerns in international trade, a high loonie has a silver lining. The other side of the coin is that Canadian importers are enjoying more bang for their buck. Similary, Canuck travellers to the U.S. can buy more products and services during their visits.

It will be interesting to see whether the stronger Canadian dollar leads to more Canadians going abroad for medical services including cosmetic surgery.

In the meantime, the jury is still out as to whether this is worth the estimated 80,000 manufacturing jobs lost in the Toronto area alone since 2002.