OTTAWA — The high-flying loonie renewed its flight towards parity Monday, forcing firms and individuals to adjust to what many believe will become a new normal in the relative value of the two currencies.
Boosted by cycle-high prices for oil and commodities, the loonie soared to within a whisker of parity Monday, reaching as high as 99.87 cents US before closing at 99.72.
The currency has been flirting with par for more than a month, and economists believe it is now only a matter of time before the psychologically important barrier is breached.
“We’re one good number away from seeing the Canadian dollar through parity,” said CIBC chief economist Avery Shenfeld.
If it doesn’t happen earlier, the trigger may be Friday’s employment report for March, particularly if Statistics Canada announces a higher gain than the 25,000 consensus call.
Scotiabank economists sent a note to clients Monday predicting the dollar will appreciate “well north of parity over the spring and summer months.”
RBC currency analyst Matthew Strauss also believes the loonie could stay above parity for several months, although his view is that it will dip slightly below the greenback later in the year when the U.S. starts hiking interest rates.
Regardless of which side of the line the currency trades at any given time, Strauss said Canadians should get used to a strong loonie — within five cents of parity either way — perhaps for years.
Economists say the shock for Canadians won’t be as acute this time as in the fall of 2007, when the loonie rose as high as US$1.10, resulting in a flood of cross-border shoppers heading south for bargains, and a commensurate dwindling of traffic the other way.
A recent report by the Conference Board of Canada suggested that many industries, particularly multi-nationals in the manufacturing and oil and gas sectors, had globalized their operations to mitigate against a stronger Canadian currency.
Still, there were indications Monday that many Canadians are looking to insulate themselves against currency fluctuations.
Toronto-based currency broker Knightsbridge Foreign Exchange said business has been brisk — about three or four times higher than normal — with small firms and individuals anxious to hedge against volatility.
Knightsbridge president Rahim Madhavji said small firms that import from the U.S. want to ensure that their purchase price won’t be wildly different when it comes time to pay in U.S. dollars. And he says he’s also getting calls from Canadians buying homes in U.S. vacation spots who want to lock in the purchase price months before the closing date.
“Volatility is good for our business,” he said. “People are hedging now because… who knows what the rate is going to be in 90 days.”
Kevin Desjardins of the Tourism Industry Association of Canada said the country’s 180,000 tourism operators are also keeping a close eye on the currency, knowing that each cent of appreciation likely means a little less business for them.
With summer’s peak season approaching, the loonie’s strength couldn’t come at a worse time for an industry already hobbled by the poor economy in the U.S. and new border restrictions that require American visitors to carry passports.
“You have to think of tourism as an export industry and like any export industry, a strong Canadian dollar is going to have an impact on our ability to get foreigners to buy Canadian,” he explained.
Many industries have made adjustments for the currency, said Avrim Lazar of the Forest Products Association of Canada, but no one should fool themselves into thinking there isn’t a stiff price to pay whenever the loonie appreciates.
He said a strong dollar means that as his industry recovers from recession, mill owners are likely to re-open in the U.S. over Canada, meaning jobs will go south.
“The government and the (Bank of Canada) feeling complacent about a high dollar would be a serious error (because) we export most of our non-government GDP to the U.S.,” he explained.
Economists say there is not much the central bank can do about the currency because it is appreciating on fundamentals — rising oil and commodity prices, the relatively low national debt, expectations interest rates will rise, and an economy recovering faster than expected and faster than most industrialized countries.
Strauss said the loonie has risen faster than any major currency since the beginning of the year, but looked at in the context of other so-called commodity plays, it has not been a fluke.
“The rally in commodities started in March 2009 and if we look at commodity currencies (Norway, Australia, New Zealand), we’re pretty much in the middle of the pack,” he said.