Wild dollar swings cause headaches

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From a deflating euro to a yo-yoing Canadian dollar, currency volatility is creating headaches for corporate Canada.

Gerry Remers can testify to that. His company, which makes high-end digital projectors used at events such as the Shanghai Expo and the Cannes Film Festival, has seen business to Europe boom this year. Demand is outstripping what the Kitchener, Ont.-based manufacturer can supply.

The problem is, any sales gain this year to Europe has been completely obliterated by the euro's decline, which makes pricing less favourable when converted back into Canadian dollars.

"Customers in Europe want our product. I'm shipping the product as fast as I possibly can - and I'm making less money than at the beginning of the year because the euro has fallen so precipitously," said Mr. Remers, president of Christie Digital Systems.

His company does about $20-million a month in sales to Europe; last month, the falling euro wiped out about $1-million of that.

It's little wonder he's worried. Volatility in currency markets has spiked lately, hitting a one-year high last week, according to JPMorgan's G7 currency volatility index. The wild swings make business planning for everything from pricing to the timing of exchanging money much more complex.

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The euro has tumbled 14 per cent this year against the Canadian dollar, a move virtually no one last year would have predicted. The dive comes just as many Canadian companies were diversifying their businesses away from the U.S. and more heavily into Europe.

"A huge part of what we're doing day to day is to answer questions and help guide the corporates," said Camilla Sutton, Scotia Capital currency strategist. "There are lots of question marks. Especially around the euro."

The Canadian dollar, meanwhile, has seesawed, falling as low as 92.95 cents (U.S.) in February before shooting to parity in April. Since then, it has sunk six cents in a matter of weeks - reverting to February levels.

Montreal-based T-shirt maker Gildan Activewear Inc. hasn't been hurt by Canadian-U.S. exchange rates. But the euro's decline is prompting it to adjust strategy. Gildan plans to raise its prices in Europe in July to counter the effect of the falling euro.

The euro's recent decline "does affect the U.S. dollar value of our European sales," said the company's chief financial officer Laurence Sellyn. The price increase "will essentially offset the currency impact."

John Curran, Toronto-based senior vice-president at CanadianForex, says he hasn't seen currency markets this volatile since the Lehman Brothers collapse in September, 2008. Investors are spooked, he says, and that's sparking a rush into the relative safety of U.S. Treasuries.

In an environment when panicky sentiment is overriding economic fundamentals - the Canadian economy has, after all, blasted past expectations in recent months - the outlook for currencies is particularly murky, he says.

Not everyone is losing sleep over foreign-exchange fluctuations. Lorne Janes, who runs Continental Marble Inc. in Paradise, Nfld., says the Canadian dollar's bumps are just one of many frustrations he's dealing with these days.

"I wish it had stayed at parity because I was just getting used to that. But it's not on the top of my list of concerns," he said. "The dollar is what it is - you just deal with it and move on."