In late 2012, the Loonie was about par with the U.S. Dollar before sliding to about 80 cents today. That’s the lowest level it’s been at since the recession.
Why is the dollar weaker? What should we expect for the remainder of 2015?
– There are three factors that have driven the dollar downward;
1) The U.S. economy is performing strongly and attracting more investors.
2) Canada is a major energy producer and the plunge in oil prices is putting pressure on our dollar. Oil prices have dropped by 60% since last summer, causing the dollar to decline in tandem.
3) The Canadian and U.S. central banks are on divergent paths. The Bank of Canada reduced its interest rate in January to shore up the economy, while the U.S. Federal Reserve is expected to raise its rate in the next few months.
So what should we expect in 2015? We believe that the dollar will remain at more or less its current level.
Strength In U.S. –
The Economy will remain strong this year, with robust consumer demand supported by a solid job market and low consumer debt. The U.S. will also benefit from high business confidence and more
government spending.
World oil supply is still higher than demand and while lower investment will eventually eliminate the glut, the transition has been slower to materialize than expected.
Dollar To Remain Weak –
These among other factors will keep the Canadian dollar close to 80 cents, or even lower if the Bank of Canada reduces interest rates again. Obviously there are winner and losers from the lower dollar. Importers, such as retailers and wholesalers, are suffering, while exporters are benefiting, with Canadian shipments to the U.S. increasing by 12% last year.
The upturn has been particularly welcome in the long-suffering manufacturing sector, where we’re seeing important gains in factory output after years of decline.
Ideal Time To Export –
If you’ve been thinking about growing your business by exporting to the U.S. this might be an ideal time.
After all, not only is there more vigorous growth ahead in the American economy, but you also gt the bonus that comes from earning U.S. dollars on what you sell while spending Canadian dollars to make it.
-BDC Chief Economist, Pierre Cleroux
