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Loonie’s collapse leaves Canada tallying the high price of a low dollar

Tags: Economy, Loonie


When completed, the Gordie Howe Bridge will help boost Canadian trade.

The new crossing between Windsor and Detroit will relieve congestion on the aging Ambassador Bridge that currently carries trucks transporting more than a quarter of Canada’s exported goods.

But for now – the bridge could be the latest victim of Canada’s battered loonie.

With the dollar at its lowest level since the spring of 2003, construction and other costs for the bridge could nearly double to more than $4.8 billion, according to one estimate.

Like the new bridge – the depressed loonie was supposed to kickstart Canada’s economy. But so far, it hasn’t worked out that way.

The story of the loonie is tightly correlated to the oil narrative. Where crude prices go, the Canadian dollar is not far behind.

Bank of Canada Governor Stephen Poloz has said if you chart the price movements of oil and the loonie it looks like a “pair of train tracks.”

Of course, two interest rate cuts by Poloz last year have also helped drive down Canada’s currency. But oil was the real culprit there. The cuts were “insurance” against the negative impacts of the crude crash on the economy.

Poloz is hoping the lower dollar will make this country’s exports more attractive and help offset damage done by oil’s collapse.

While Canada’s trade deficit has narrowed – the weaker dollar has yet to deliver a much hoped-for export boon.

BMO senior economist Benjamin Reitzes notes that, historically, it can take between two and three years before the dollar can have a meaningful impact on exports.

One reason for this: Canada isn’t the only exporting nation to see the value of its currency drop.

Canadian goods are cheaper, but so are exports from Mexico, Brazil and Russia. And there are fewer Canadian manufacturers pumping out export goods. Over the past decade, Canada has lost about 10,000 factories.

Thanks to the lower loonie, factories that are still in business now pay more to import material and equipment that could help expand their business.

Stephen Poloz has said this is all part of the complex adjustments to Canada’s economy triggered by plunging oil prices.

Canada’s top central banker says there are more positives than negatives, but the negatives from the energy sector will be with us for “some time.”

Whether the loonie can be the bridge to the new post-oil economy is still up for debate. In the meantime, Canadians are left to add up the mounting costs of the low dollar. CTV Two CTV News CTV News Channel BNN - Business News Network CP24