Nicolas Van Praet, Financial Post Montreal — The era of fearing Canada’s high-flying loonie might finally be passed.
Trading near US98.6¢, the dollar is now the closest it’s been to one-on-one status with the U.S. greenback since July 2008. And Jim Flaherty, Canada’s finance minister isn’t flinching.
“We see where it’s at now and it’s competitive,” Mr. Flaherty said of the currency’s impact on the Canada’s economy in an interview on Bloomberg Television. The economy could be at risk if the loonie rose to an uncompetitive level but that is not expected to happen, the minister said.
There was a time not so long ago when a loonie edging closer to parity with the U.S. dollar would trigger hoots of outrage from business leaders and federal opposition ranks alike, demanding the Canadian government do something to tame the bird or face ballooning welfare rolls and corporate bankruptcies. Just last summer, Mr. Flaherty himself expressed worry about the loonie’s quick rise.
But the country has now lived with a Canadian currency that’s stayed above US90¢ for much of the past year after hitting a high of US$1.10 in 2007. And today, that indignation may be over amid a raft of data suggesting Canada’s economy is surging back to life.
The S&P/TSX Composite Index on Tuesday rose to its highest level has since September 2008. Oil prices firmed up past US$81 a barrel. New government data showed labour productivity improvements blasted past expectations to 1.4% in the fourth quarter — the fastest rate in almost 12 years.
The governing Conservatives are also taking heart in this past Friday’s labour force survey, which showed Canadian employers hired more people than expected. Employment has been on an upward trend since July 2009 as 159,000 jobs have been added over the past eight months. The economy grew at an annual rate of 5% in the fourth quarter.
But another key element is what’s happening with manufacturers, who typically get hit when the Canadian dollar rises because the goods they sell outside the country become more expensive.
Fresh manufacturing figures Tuesday added to the evidence that Canadian companies are adjusting better than in the past to currency swings, as long as those swings aren’t gigantic. January manufacturing sales rose 2.4% to $44.6-billion, a fifth straight month of growth for a sector hit hard by weak demand during the recession.
“For manufacturers, this situation now is really like a bad remake of Groundhog Day. We’ve seen this before,” said Jeff Brownlee, spokesman for the Canadian Manufacturers and Exporters association. “What we’ve been saying to our members is that the new normal is the dollar at par or beyond. Par is not a ceiling. And if you can compete at par, and if the dollar doesn’t go there, you’re going to be making money.”
Examples abound of Canadian exporters which have reinvented themselves or stepped up their game to stay alive and win in the face of a higher dollar. Kitchener, Ont.-based Christie Digital Systems Canada, Inc. realized the televisions it was making could no longer compete with cheaper-made Korean and Chinese rivals. So it switched its vocation and now makes advanced video projection systems used at concerts around the world.
Others have taken less dramatic steps, protecting themselves with currency option contracts, retooling plants with new machinery, or engineering their operations to ensure U.S. denominated revenue was used to pay U.S. suppliers.
“Exporters to the U.S. have had fair warning and they’re tried to adjust to it. So maybe to some extent they’ve got used to it,” said Dale Orr, an independent economist. “They’ve lost a little bit of steam in terms of getting public sympathy or government sympathy, that’s for sure. It isn’t there like it was.”
Behind the latest numbers and the success stories however lies the stark fact that nothing dramatic has changed in the competitive fundamentals of Canadian companies over the past three years, warned Don Drummond, chief economist at TD Bank Financial group.
To take just one measure, although Canada’s private sector productivity soared in the fourth quarter, it was its first uptick in more than a year and it fell during the recession as the United States’ output per hour worked rose sharply. Productivity still trails that of our trading partner.
“Canadian businesses have not become more competitive this time around than they were the last time the dollar was reaching parity,” Mr. Drummond said. “There’s no tangible evidence looking at the productivity and the cost-effectiveness of the business sector to suggest that they’re in a better position this time around. In fact if anything, they’re worse.”