by Michael Arbow MBA
Partner, RSD Solutions Inc.
Last week Rick Nason and myself were in Ottawa discussing risk management. It wasn’t long into the conversation that our host pointed out that one of the biggest issue facing Canadian exporters is the rising (soaring?) Canadian dollar - affectionately called the loonie. Over the next few blogs I intend to look at the loonie’s rise, its future and consider how risk management can help ease the burden to exporters. First let’s set the stage.
The Canadian dollar has gained 19% against the US dollar in the last 4 years and within the last months has gained a little over 3%. Sure, the gain has been an up and down ride, but the end result is an upward trend partly secured by the US’s struggling and heavily indebted economy and Canada’s abundance of natural resources. As Mr. Flaherty the Minister of Finance recently stated: “We’re done with the Canadian peso.” The loonie has broken free of the broken currency image.
In the near term analysts believe that a combination of higher commodity prices (minerals, oil, food), expectations of tighter monetary policy by the Bank of Canada and a brighter economic outlook in the US will push the loonie even higher. Economist David Rosenberg is forecasting a $1.20 CAD/USD between 2013-2015 and in the near term, Bay Street is talking 1.05-1.10 in 2011.
This appreciation of the loonie seems inevitable and perhaps explains one of the reasons that the China Investment Corp – China’s $300 billion sovereign investment firm will establish its second office outside of China in Canada. It just may be time for exporters to re-visit their risk management strategies in the area of coping with negative foreign exchange movements.
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