Canadian exporters pressured by sliding U.S. dollar

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(Host) U.S. shoppers are accustomed to finding goods deals in Canada, largely because the exchange rate has favored the strong U.S. dollar. But the value of the U.S. dollar has slid over the last year. Meanwhile the Canadian dollar has risen rapidly to seventy-three cents to the U.S. dollar – a rise of 10% in the last nine months.

Jay Bryan is the business columnist for the Montreal Gazette. He says Canada’s healthy economy and high yields from interest rates have boosted the dollar’s value. But it’s not all good news for Canadian businesses:

(Bryan) “I think the average person on the street, reading the newspaper may think, ‘Woohoo!’ You know, ‘Our dollar is no longer the Canadian peso! If I feel like going down to Burlington and spending the weekend, I can afford it.’ But if you’re running a manufacturing company, or you’re a better read worker at a manufacturing company, you understand how these things affect you and you’re beginning to feel a little worried.”

(Host) That’s because 86% of Canada’s exports go to the United States. A strong Canadian dollar means firms north of the border are less competitive when they sell goods in the U.S.

Tuck Business School Professor Andrew Bernard says Canadian exporters have to choose between keeping prices high, or letting profits erode:

(Bernard) “And that’s what every single Canadian exporter is deciding right now. And they’re having a hard time doing it because there’s been a pretty big change in a fairly short period of time and there’s a lot of uncertainty about what happens next. I think that a lot of Canadian firms that weren’t worried about the strengthening of their currency and maybe didn’t plan for it are scrambling to- They’re going to have figure out what to do if the Canadian dollar stays strong.”

(Host) Bernard says companies that are highly dependent on currency values probably hedged against fluctuating exchange rates. They may have locked in favorable rates when the U.S. dollar was stronger and the Canadian dollar was weaker. However, those financial contracts usually last for only a year.

Business columnist Jay Bryan says currency values can be accurately measured, but markets don’t always respond:

(Bryan) “The problem is that it takes so long for currencies to adjust. When you’re able to measure the overvaluation or the undervaluation, you can do the measurement, you can look at the numbers and it’s a reasonably precise measure. But it doesn’t mean much in the short run because it takes so long for the psychology to catch up to the reality. You can go on spending overvalued dollars in the world for many, many years.”

(Host) Bryan says the majority opinion among economists north of the border is the Canadian dollar has reached its peak and should stabilize in the coming months.

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