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The high costs of the high loonie

As the loonie flies higher above parity with the U.S. greenback, many Canadian companies are feeling the pinch.

As the loonie flies higher above parity with the U.S. greenback, many Canadian companies are feeling the pinch.

Some manufacturers say they are being charged an extra three to four per cent by Canadian branches of American suppliers if they pay in U.S. dollars, says Craig McIntosh, CEO of Acrylon Plastics in Winnipeg. As a result, they are moving away from Canadian suppliers and buying directly from the United States.

Another impact of the higher loonie is that more Canadians are spending their money south of the border where prices are lower. Anne Kothawala of the Retail Council of Canada notes that Canadian stores have to deal with high import taxes, and cross-border shopping takes money out of local communities.

One sector that is making more money thanks to the high loonie is the travel industry, where Canadians now get a favourable exchange rate.

But the dollar’s impact on exporters may have one of the biggest effects on Canada’s economy and jobs. Jeff Brownlee of Canadian Manufacturers and Exporters says CME’s research has shown that for every one-cent rise in the loonie relative to the greenback, it costs Canadian companies $1.5 billion more to do business globally each year.

As the loonie rises, Canadian products become more expensive to sell abroad, making it harder for companies to compete with manufacturers in countries with weaker currencies.

 
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