How the Soaring Canadian Dollar afffects our Prosperity
With a remarkably strong loonie in recent times many Canadians
have mixed emotions. Many at first couldn't have been happier, thinking about getting a better exchange rate for the American dollar. Yes the Canadian dollar got you a lot further in foreign countries. With the loonie hovering around $0.80-0.86 USD, it's the highest it has been in years.
But what many people didn't think about were the global impacts or about the economics especially when it comes to Canadian imports and exports which this article outlines.
Canada is a primarily an exporting country that generates much of its revenue from trade surpluses. With the rise of our dollar, Canadian products have become much more expensive for other countries to buy, making it harder for Canadian
exporters to compete in the global market. Compared to labour costs in competitor countries, Canadian labour seems relatively expensive while the cost of machinery and other industrial capital decreases so Canadian manufacturers tend to lay off workers and just invest more in capital equipment. However, getting more capital does take time to initiate, so other adjustments will have to be made so that in the long run, the soaring dollar can be positive because stiffer competition pushes Canadian exports to do their best.
This was just a generalization though; according to the article, the higher Loonie tends to hurt eatern Canadian exporters the most, especially manufacturers because of stiffer competition but western Canada seems to be taking advantage of the higher exchange rates. Revenues from natural gas exports are greater than it has been for the last couple of years when the dollar was weaker. Last fall the oil was at $55 U.S. a barrel and the exchange rate was at 79 cents, our exporters received $70 CAD per barrel. Today with oil at $68 U.S. and at an exchange rate of 86 cents, exporters earn about $80 Canadian per barrel. This is because energy is a need and is in demand so even if it does cost the U.S. to import it from Canadian, they still will because it is essential to their country. How the rising dollar affects exporters really depends on what is being exported. They energy-exporting regions of Canada are largely protected from the negatives of a stronger Canadian dollar and are thriving while others are being hit hard, especially in the manufacturing industry. Manufacturing shipments and jobs declined in 5 of the first 7 months of this year, hitting Ontario the hardest.
Importing is not as common of a topic as exports when it comes to the rising dollar. In fact, this article doesn’t’ even mention it. But when it comes to imports, Canada is able to import larger amounts costing us less. So for these importers, their sales and profits generally tend to rise. It is great for Canadian consumers as well but then with cheaper foreign goods available, it drives out the demand for Canadian products which can mean trouble for Canadian
industries. This can change the balance of our imports. At the moment we are still a largely exporting nation but what would happen if that was reversed? If the Loonie’s value stays like this for a while that might just be a possibility (though it is not very likely).
With currency fluctuations comes effects and since the value of our dollar is at the highest it’s been in years, it arouses fear in many Canadians. Should we consider it a good or bad thing? It is both- with anything comes positive and negative effects; out industries just need to learn how to deal with it or be left behind. For such a long time, our industries have been running on a cheap dollar and are familiar with taking advantage of that but once the Loonie started to rise, it was as if many of them were not sure what to do and workers in the exporting industries generally looked at the negative aspects. This shows us that Canadians must not be dependant on a specific valof currency and need to be prepareo face anything. Right now they are adjusting to the higher value of the dollar but it is not going to stay at this rate forever. The higher Loonie prepares our importers and exporters to face challenges and in the long run, forces them to become more efficient and effective global competitors.