Strong Canadian dollar has one positive

Canadian dollar and US dollar

The Canadian dollar has reached parity with the USD and it appears that it is not going to turn back down that quickly as was expected by a lot of people. The strong dollar makes it very difficult for a lot of businesses in Canada to succeed. Companies that rely on exports to US, which is roughly 20% of the overall Canadian economy (down due to the financial crisis that hit the US very hard) are trying to cope with the currency change and must find a way to make it work or risk failing. The strong dollar means that their products are now more expensive for Americans even though the product has not changed in any way. 

At first it looked like this would be a wave that will last for only a few months and return back to well below parity but, now it increasingly looks like parity may be the new normal for some time to come due to the strength of commodities like oil and a relatively strong Canadian financial sector. The negative impact for Canadian businesses is clear, however, there is also a positive in all this for those same businesses.

Since NAFTA came in to force (and before that the FTA) Canadian exporters have relied very heavily on the U.S. market for their customer base. Of all the exports Canada does, somewhere between 75%-80% of it goes to the United States. There are several reasons for this, such as: geographic proximity, cultural similarity and the fact that the U.S. is the best single market in the world. The two countries are each other’s largest trading partner and this is a positive fact. However, Canadian businesses saw the U.S. market as the easiest choice and became over reliant on them. The currency parity highlights that Canadian businesses need to do what other countries have had to do all along since they did not have the luxury that Canadian businesses have had.

Canadian businesses need to become more competitive globally. They need to cut unnecessary costs and diversify to emerging markets and other mature markets. By doing this, they will become better companies overall and it will enable them to increase their potential. By being diversified in their customer base, they will be well suited to survive issues that they cannot control like the financial crisis that hit certain countries harder than others. They will also be better suited to compete in the U.S. markets against new foreign competition because they will have already competed with them in other markets.

Another big part of this is that it encourages these companies to develop their business within Canada. Obviously, the Canadian market is not as large or as easy to sell to as the U.S. market, but it does represent stable success because there is zero currency risk at home and can become a bread and butter market for Canadian businesses.

When the currency comes back down from par, whenever that will be, these Canadian companies that adapted correctly will then be better businesses and will have the chance to be even more competitive than before in the U.S. market. This change will give these businesses a much better chance to be successful for many years to come.