The Bank of Canada made it clear on Tuesday that it will do as much as possible to keep the dollar stable, as it relies on Canada's businesses and exporters to make up for a lack of demand by the country's debt-burdened consumers.
On Wednesday, economists at National Bank bolstered the bank's cause, releasing a chart showing the effects on profit margins if the loonie appreciates by 5 per cent to stand at $1.02 (U.S.) - which just happens to be the bank's average forecast for 2011.
"In Canada, factories export about half of their production. Many sell on markets where prices are denominated in U.S. dollars. Therefore, movements in the exchange rate between the loonie and the greenback have a critical impact on profits reported in Canadian dollars," the bank said.
National Bank says of the more than 19 manufacturing industries considered, seven "already have profit margins of 2 per cent or less on their Canadian operations. (See attached infographic) In their case, this small appreciation is enough for margins to turn negative or to stand just over 0, other things being equal."
The bank says that even with a gradual increase in U.S. demand for Canadian products, "the situation will remain challenging for many Canadian manufacturers."
