Experts are warning that the continued rise of the Canadian dollar could pose problems for the country's economy as it tries to fully rebound from the effects of the recession.
At closing, the Canadian dollar sat at 97.48 cents US, shooting up a full cent on Wednesday. The loonie has risen more than five cents in the past two weeks, with most of its gains coming in recent days.
It's a problematic development in a country where more than one-third of the national gross domestic product is tied to exports, three-quarters of which end up south of the border in the United States.
Avery Shenfeld, the chief economist for CIBC World Markets, says simply that the higher the dollar goes, the more expensive it is for people to do business with Canadians.
That may be a good thing for nabbing bargains while engaging in cross-border shopping, but it's not a helpful trend for many Canadian manufacturers and businesses.
"It makes Canadian workers look expensive, when you're paying them one full U.S. dollar every time you pay them a Canadian dollar," Shenfeld said Wednesday morning when discussing the issue on CTV's Canada AM.
The Canadian Manufacturers and Exporters estimates that each time the loonie appreciates by one per cent, sales are reduced by about $2 billion, which is the equivalent of about 25,000 jobs.
Shenfeld said the Canadian dollar previously reached parity with the U.S. greenback only a few years ago, but the circumstances were not the same as they are today.
"We were exporting oil at much higher prices, natural gas at much higher prices, even some of the metals were much higher than they are now," he said.
Now Canadian businesses and manufacturers are dealing with a weak export market to the U.S. at the same time that they are dealing with a rising dollar. And the higher the loonie goes, the more that Canadian workers may find themselves on the outside looking in, when it comes to manufacturing opportunities.
"If Canadian workers look expensive in U.S. dollar terms -- and they do -- the risk is that they close more plants on this side of the border and keep a plant open in the south of the U.S., for example, because it's cheaper," Shenfeld said.
Prime Minister Stephen Harper also holds concerns about the loonie, particularly that its rapid ascent in value could end up slowing down the overall pace of recovery from the recession.
"I don't think it's a risk to choking off the recovery, but if it goes up too rapidly it does have difficult effects on our economy," Harper said Tuesday while speaking to reporters in Vancouver.
He said the Bank of Canada ultimately has responsibility of dealing with the dollar, though he did not provide an opinion on what Governor Mark Carney should do.
Shenfeld said the Bank of Canada could choose to intervene in the market, though it is unlikely that it will.
"It's something that they haven't done in a decade, which is basically print Canadian dollars and sell them and try to drive down the Canadian dollar and drive up the U.S. dollar," Shenfeld said.
"They seem very reluctant to do that," he added. "So, I think the Bank of Canada is now looking at other policies that they can do -- like keeping interest rates low for longer -- to try to help the Canadian economy along to the extent that the strong Canadian dollar hurts the Canadian economy."
Derek Holt, the vice-president of Scotia Capital, said Tuesday that the rising dollar is moving like "a freight train" and there is little that Bank of Canada can do to stop its ascent.
Holt said the loonie could reach parity with the U.S. dollar as soon as next week.
Many economists have been forecasting that to happen by the middle of next year.
With files from The Canadian Press
