Economic Impact of a Low Canadian Dollar 2016

More Canadian economy news, the loonie has hit its lowest level in more than 12 years this week, it briefly traded below 71 cents US.  Could it keep falling? Rahim Madhavji, he is the president of Knightsbridge Foreign Exchange joining us in the studio.

Will the loonie keep stumbling, if so when will it stop?

Well I think in the short term, the loonie will continue to have a little bit of a slow grind, there’s a little bit of pain and stock for the Canadian dollar, a lot of the trends will be seeing over the recent terms, oil prices are waning, there’s a bit of a crisis in confidence in China.  That doesn’t bode well for the loonie, so we expect a little bit more pain for the Canadian dollar in the short term.  In the longer term, when oil prices start to rise, we’ll start to see the loonie start to rise as well.

You mentioned that oil and the situation in Canada, what else is a factor on our loonie? the two big things in the short term, oil prices as a petrocurrency, the Canadian dollar is impacted.  China is also causing a bit of a ripple storm, there’s a bit of a crisis in confidence because when China seizes, Canada can catch a cold.  For other factors, domestic economy and wealth, somewhat stronger than expected job growth in Canada recently, as you just discussed.  If you look at the devils in the details, you can see the full-time jobs weren’t high quality jobs, but there were a lot of great part-time jobs.  The Canadian economy hasn’t been doing as well as the US economy, at the end of the day, if the Canadian economy does well then the Canadian dollar will do well.

What type of industries would stand to gain from a low Canadian dollar?

It’s not necessarily a bad thing to have.  That’s right, there’s always people on both sides of the coin and obviously manufacturing does well because businesses in the United States start to buy from Canada, they start to become a lot cheaper so anytime someone is an exporter in Canada, they start to do well, so the manufacturing sector is doing well.  Also tourism will start to do well, a lot of people in the US and abroad will start to flock towards Canada because of the cheap loonie, it’s effectively 40 percent cheaper today than it was two to three years ago when we were at par and hence we’ll see manufacturing do well and tourism do well.  Snowbirds on the other hand, aren’t feeling too good about the loonie right now.

Now I know Alberta has launched a strategy to increase tourism, so that’s one way to they’re trying to offset the falling oil prices, what do you think in the long term? Positive or negative effect for the local economy?

At the end of the day, the Bank of Canada wants a low loonie and that’s because it eventually attracts funds of flows into Canada, boosting revenues.  So with a low loonie, people start purchasing from Canada and that bodes well whether it’s manufacturing, whether it’s tourism, people will buy from Canada because what we’re selling is a little bit cheaper.  So in the short term, it will do well, in the longer term, we probably don’t want to see the loonie as low as it is now.  For a little bit more of an equilibrium, we need to see commodity prices to rise a little bit higher for that to happen.