Canadian Dollar’s Plunge Could Help Canada Weather Economic Slowdown

(The Canadian Press – Christine Owram)

Experts say the plunging loonie, now at its lowest level in more than three years, could help Canada weather a global economic slowdown by making exports more competitive but things will be tough.

Canada’s manufacturing sector suffered as the dollar soared above parity with the U.S. greenback last year for the first time in decades. The strong dollar made Canadian-produced goods relatively more expensive and hurt export-based industries, particularly the auto and forestry sectors, which have lost thousands of jobs in the last year.

One hope for Canadian exporters is that the loonie’s drop may soften the impact of a worldwide recession.

“It will help, but to the extent that the weak Canadian dollar is also a symptom of poor global economic growth, it’s more of a cushioning of the recession rather than a cure for it,’’ said Avery Shenfeld, a senior economist with CIBC World Markets. He said the Canadian economy is too tightly intertwined with its American counterpart – reeling from the continued financial meltdown – for the currency exchange rate to reverse its woes completely.

The Canadian dollar closed Wednesday in North America on Wednesday at 79.70 cents US, down 2.69 cents from the previous close. It dropped another third of a cent in overseas trading early Thursday. The loonie – which hit its all-time high of 110.31 cents US almost a year ago, last November 7 – hasn’t been below 80 cents since mid-2005.

The Canadian dollar is considered a commodity currency, meaning the decline in the price of crude oil, metals and minerals due to shrinking global demand has been a major factor in the loonie’s fall. December crude contracts fell $5.43 Wednesday to settle at US$66.75, the lowest close for a front-month futures contract since June 13, 2007, when crude settled at $66.26.

TD Bank chief economist Don Drummond said his benchmark for the dollar is 85 cents US, because Canada’s economy is approximately 85% as productive as that of the United States. “We’ll deviate from that depending on whether commodity prices are above or below their trend,” Drummond said. Read more here.