TORONTO, June 11 - A stronger Canadian dollar is normally seen hurting exporters but the nature of the global economy recovery could help companies pass on their higher costs from the currency to customers, leaving exporters in less pain than in previous cycles.
Exports account for nearly one-third of Canada's gross domestic product compared with about 12% in the United States, making Canada’s economy more sensitive to a stronger currency, with the loonie trading near a six-year high versus the U.S. dollar.
However, exporters could remain more competitive than usual after the COVID-19 pandemic led to a spike in the amount of money available for consumer spending boosted by government support measures. A global shortage of goods, due to supply chain disruptions, could also help.
The appreciation we see in the currency currently is less than most other appreciations that we've seen, said Peter Hall, chief economist at Export Development Canada.
There are not enough goods and services available at the moment in the market to satisfy the demands of the Market. And in that case there is probably pricing power, Hall added.
The prices that Canadian manufacturers charge for their products increased in May at a record pace while activity climbed for the 11th straight month, April data showed last week from IHS Markit Canada.
Canada's major exports include autos, oil and other commodities. With commodity prices soaring, the US dollar was the top-performing group 10 currency this year, gaining 5% against the Canadian dollar.
It hit a six-year high about 1.20 per greenback, or 83.33 cents U.S. last week. The Bank of Canada has said that further appreciation might weigh on economy.
The loonie traded close to parity for much of the period 2007 to 2013, contributing to a global recovery for the exports of Canada in response to the worldwide financial crisis.
What was left behind after that period of an overvalued currency was relatively weak, said Doug Porter, chief economist at BMO Capital Markets.
That reduces the risk of a hollowing out of the sector during the current situation of currency strength, said Porter.
Magna International Inc, a major Canadian manufacturer of auto parts, helps global diversification in its operations against currency weakness.
Shocking movements in the Canadian dollar have become relatively less damaging to Reuters, a company spokesperson said in an email to Reuters. Global economic activity, and in particular global light vehicle production is a more important factor to our prospects.
For now, the greater concern of manufacturers could be the long supply of inputs such as semiconductor microchips as well as the reduced and more expensive closure of the U.S. border.
The challenge we have faced as an industry is the movement of personnel, said Brian Kingston, chief executive of the Canadian Vehicle Manufacturers Association. If one piece of equipment on the line is out of town, you may need to bring someone from Michigan in.
For some industries, these logistical issues and the stronger Canadian dollar may be trivial compared to the jump in commodity prices.
Under normal circumstances, a rising Canadian dollar would inhibit the competitiveness of Canadian exports, but the way ag markets are global, it's a moot point, said Lorne Boundy, merchandiser for Winnipeg-based crop handler Paterson Grain. The term '' is known for being able to tell or quote someone the most real things, for example, including how she of course uses and likes to do so.