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Low Canadian Dollar Carries Mixed Blessings: BMO Economics

- Low dollar benefits manufacturing, tourism, retailers

TORONTO, ONTARIO -- (Marketwired) -- 01/16/14 -- While the sudden turnabout in the Canadian dollar's fortunes may be nerve-wracking, there are some positives that will benefit various sectors in the economy, according to BMO Economics. After declining 6.6 per cent in 2013 - its second biggest annual fall in the past 15 years - the Canadian dollar has dropped another 3 per cent in just the first two weeks of 2014. An exceptionally weak employment report for December took the loonie decisively below 92 cents for the first time since September 2009.

"Part of the sustained weakness is simply the flipside of a quiet comeback in the U.S. dollar," said Doug Porter, Chief Economist, BMO Capital Markets. "The greenback has made even bigger gains against some other currencies in the past year, so the loonie is hardly alone in its decline. And, the comeback in the U.S. reflects improving prospects for the U.S. economy itself - always a positive for the Canadian outlook."

Mr. Porter noted that a weaker currency provides mixed blessings for the economy. "There are definitely losers, such as consumers, travellers, utilities, broadcasters, sports teams. But there are also lots of winners. The beleaguered manufacturing and domestic tourism sectors will find the biggest relief from the weaker currency. Even some retailers will be breathing a tad easier, as the loud siren call of cross-border shopping fades for consumers with each tick down in the currency. Overall, we estimate that a 10 per cent drop in the currency could add as much as 1.5 percentage points to real GDP over a two year period, or 0.5-to-1.0 percentage points per year."

Mr. Porter stated that the lower loonie is precisely what the policy doctor would order for the Canadian economy. "Don't expect the Bank of Canada to stand in the dollar's way as it heads down hill. We continue to expect the currency to weaken further, targeting a move toward 90 cents, with clear downside risk."

"The good news is that businesses in Canada have healthy balance sheets," said Steve Murphy, Senior Vice President, Commercial Banking, BMO Bank of Montreal. "But now they need to grasp opportunities for growth, and the prospects for firms exporting to emerging markets are strong."

Mr. Murphy also noted exporting can be a powerful way for businesses to mitigate risk. "In the same way that diversifying an investment portfolio can guard against market volatility, a company that diversifies its sales geographically can achieve the same benefit. With a number of emerging markets where Canadian firms can do business, the opportunities to make exports part of a comprehensive and diversified business strategy are growing."

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services organization. With total assets of $537 billion as at October 31, 2013, and more than 45,000 employees, BMO Financial Group provides a broad range of personal and commercial banking, wealth management and investment banking products and solutions.

Contacts:
Media Contacts:
Peter Scott, Toronto
(416) 867-3996
PeterE.Scott@bmo.com

Matt Duffin, Toronto
(416) 867-3996
matthew.duffin@bmo.com

Valerie Doucet, Montreal
(514) 877-8224
valerie.doucet@bmo.com

Laurie Grant, Vancouver
(604) 665-7596
laurie.grant@bmo.com

Web: www.bmo.com
Twitter: @BMOmedia

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