Let’s begin with a premise.

Over the past year, the Canadian dollar has been at par or higher versus the United States’ dollar much of the time. This has forced many businesses to adjust their prices downward.

Mainly it resulted in the price spread, Canadian versus U.S., being re-aligned from a positive differential to near equivalency. For example, the price of most new cars sold in Canada has generally dropped.

Now the loonie has fallen to $0.85 USD again. What are the implications, if this relationship proves to be lasting?

The lower-valued Canadian dollar will help manufacturers that sell into the U.S. market, provided that they access most of their materials domestically.

However, the lower-valued Canadian dollar will be a problem for manufacturers that acquire most of their inputs from the U.S. and sell to the Canadian market. Their margins will be reduced as there will be little ability to raise prices in a weakening economy.

The cost of imports from the United States has just gone up. A blanket statement that a lower-valued Canadian dollar helps Canadian manufacturers is somewhat misleading.

One always has to look a little deeper than surface effects when it comes to economic consequences.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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