OTTAWA — The Canadian dollar’s latest surge is again raising concerns that the soaring currency could restrain economic recovery in the country’s manufacturing heartland.
The dollar rose to the highest level since October on Tuesday after adding nearly a cent in value Monday. Boosted by equally strong oil prices, the loonie flew as high as 96.74 cents US during midday trading, closing up 0.23 at 96.25.
The loonie’s recent climb comes at a critical time for Canadian manufacturers, particularly those in Ontario who were hit hardest by the loss of U.S. markets during the economic downturn.
Canadian exporters have been hoping to get a major boost from a resurgence in U.S. factories, but a stronger loonie and weaker U.S. dollar will make their products less competitive.
“Exporters in Canada trying to sell stuff other than crude oil will find their goods increasingly uncompetitive in the United States,” noted Carl Weinberg, chief economist with U.S.-based High Frequency Economics.
“The death toll amongst Canadian exporters will rise until oil prices and the loonie turn the corner.”
Once an exporter closes its doors, “it does not spring to life if the Canadian dollar starts to go the other way,” Weinberg added.
Bank of Canada governor Mark Carney began warning as far back as last summer that the dollar’s strength could derail the recovery.
Most analysts believe the currency’s fundamental value is about 85 cents US, but they also forecast it will break through parity sometime this spring.
Most Canadian exporters have already factored in a dollar at parity in their operations, as painful as that is, says Jayson Myers, president of the Canadian Manufacturers and Exporters group.
Equally, or even more pressing, is that the U.S. manufacturing sector has used the recession to restructure by consolidating production and supplies within the domestic market, shutting out Canadian partners. Many Canadian branch plants have been repatriated stateside.
As well, the U.S. market is less accessible because of border restrictions and legislation such as Buy America clauses in stimulus spending.
“The dollar is manageable, these other issues are not,” Myers said.