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Loonie’s volatility brings long-term hope but short-term headaches for exporters

JONATHAN HAYWARD/THE CANADIAN PRESS

A lower Canadian dollar may be welcome news for the country's exporters, but waiting for the currency to find its new normal is unsettling.

"Volatility is a killer," Jayson Myers, chief executive of Canadian Manufacturers & Exporters, said Friday as the loonie tumbled again, closing at 97.17 cents U.S.

"It makes it really difficult to plan."

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Exporters may delay locking in sales if they expect the dollar to fall. On the other hand, manufacturers that use foreign content in their products may try to take advantage of opportunities now.

"It's a very tricky situation," Mr. Myers acknowledged.

But there is light at the end of the tunnel.

Mr. Myers argued that many of the factors that are holding down the dollar will wind up being good for many Canadian companies in the longer-term, including cheaper commodity prices and a U.S. economy that's now growing faster than Canada's.

Working against a lower dollar is Canada's Triple-A credit rating, which continues to be a powerful magnet for foreign investors looking for havens. In March alone, foreigners purchased a net $1.2-billion in Canadian securities. That's a slower pace than in the past couple of years, but still high by historic standards.

The problem is volatility, and projections for the currency differ widely.

Businesses hedge against the volatility "as much as possible," but that's not always possible for smaller companies, Mr. Myers said.

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JPMorgan Chase & Co. expects the Canadian dollar to stay near par for a while. Toronto-Dominion Bank, on the other hand, is forecasting a 90-cent dollar by early 2014, citing the weaker Canadian economy and falling prices for some of the key commodities that Canada produces.

Adding to the uncertainty is the imminent arrival of a new Bank of Canada governor, Stephen Poloz, who takes over from Mark Carney on June 1.

Some analysts expect Mr. Poloz, who has spent the past three years as head of Export Development Canada, to be a more vocal advocate of a cheap dollar than Mr. Carney, who is leaving to become governor of the Bank of England.

"Canadian exporters will finally find an ally at the central bank," currency analyst Ashraf Laidi of London-based City Index Ltd. said in a research note. "Stephen Poloz is likely to be more attentive to the needs of exporters via capping the Canadian dollar."

While Mr. Poloz could talk more about the currency, economists don't expect actual intervention.

Export Development Canada, the export finance Crown corporation, is forecasting a dollar at or near 95 cents for much of the next five years.

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EDC chief economist Peter Hall said a chunk of the easy money that central banks are pumping into their economies has found its way into currencies. That process is poised to reverse course, pushing the Canadian dollar lower, he said.

But Mr. Hall said it is an indication the global economy is "getting back on its feet."

The good news is that many Canadian companies have developed what Mr. Hall calls "Dutch discipline," finding ways to remain profitable with a high dollar.

He said it's all "gravy" for them as the dollar heads toward 95 cents or less.

"Any time the dollar starts to lose lift, most companies see that as a positive," Mr. Hall said.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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