Economic Consequences of a Lower Canadian Dollar

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Economic Consequences of a Lower Canadian Dollar

After hovering around parity with the US dollar for three years, Canada?s exchange rate fell sharply in 2013, ending the year near 90 cents (US). Initially, the lower dollar was greeted with relief, especially for our manufacturing exporters. But as the dollar continued to slide, people became more conscious of the costs to the domestic economy of a lower exchange rate: the benefits of a weaker loonie are likely to be small compared with its costs.

Export volumes have shown little sensitivity to the exchange rate, with growth in foreign export markets their main determinant.

Manufacturers benefit the least from the lower dollar, as they use the most imported inputs. Natural resource industries profit the most. Prices will rise for important sectors of consumer, business and government spending in Canada. Energy is affected the most, where an integrated North American market sets one price in US dollars.

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