The loonie has its ups and downs, and with each major fluctuation come challenges for some and opportunities for others.
The Canadian dollar hit its lowest level in three years this week, falling to 93.98 cents U.S. on Monday — a long way from parity, where it was at the beginning of the year, and the first time it has closed below 94 cents since June 2010.
The loonie has fallen almost seven per cent since the beginning of the year, and some analysts and traders predict that it will keep dropping, with Goldman Sachs expecting it to trade as low as the high 80-cent level next year.
Observers have attributed the recent decline to a combination of the strengthening of the U.S. economy, weaker-than-expected inflation at home and the Bank of Canada's decision to keep the interest rate at 1%. The recovery in Europe has also played a part, as investors' need for a safe haven for their money diminishes.
While Canada is increasingly looking to diversify its trading partners, the economy is still highly dependent on doing business with the U.S., and whether you are rooting for the dollar to rally or revelling in the loonie's recent decline largely depends on what side of that business relationship you're on.
Canadian consumers and travelers are some of the biggest losers when the dollar is low because their money doesn't go as far in the U.S.
Conversely, when the loonie is strong, Canadians often use the opportunity to make cross-border shopping trips or travel outside the country.
If you're a frequent cross-border shopper, you might benefit from getting a U.S. dollar credit card that is tied to a U.S. dollar bank account. That will save you the approximately 2.5% that banks charge for foreign currency transactions when you use your Canadian credit card south of the border.
When the dollar is near or above parity, consumers increasingly expect to see that reflected in stores on their side of the border, too. In the past, when the dollar has been strong, such as when the loonie peaked at a record $1.10 U.S. in 2007, failure to adjust prices downward to more closely reflect their U.S. counterparts has sparked public anger.
Companies that export goods to the U.S. or that have a lot of international sales benefit from a weak dollar. One such example is the Montreal-based dairy producer Saputo, with half of its revenue coming from overseas sales. Its Canadian sales are unaffected by the currency decline, but it gets more bang for its buck on the rest.
Conversely, a strong loonie makes it more expensive for Canadian manufacturers and exporters to sell their goods south of the border — everything from lumber to auto parts. A rising loonie also makes it cheaper for Canadians to import goods from the U.S. Industry can use the opportunity to purchase cheaper U.S. technology that can improve productivity.
