Investors tend to point at the loonie to explain changes in Canadian exports to the U.S. but history shows the currency has little effect on cross border economic activity. Export growth is far more dependent on Americans' consumer spending and this is good news in light of a strengthening U.S. economy and falling greenback.
The first chart below compares the value of the loonie with Canadian export levels. Note that the data are from the U.S. perspective (a rising blue line indicates a falling Canadian dollar) to keep the numbers consistent through our two charts.
If currency value were the primary determinant of domestic exports southwards, the lines on the chart would more in tandem, with U.S. imports from Canada rising along with the U.S. dollar. Since 1994, however, it was more common for the two data series to move in opposite directions.
Commodity exports are a big issue that prevent the "weaker loonie/higher exports" theory from happening in the real world. Higher oil prices, for instance, increase the U.S. dollar value of their imports while simultaneously pushing the loonie higher. The case remains that currency is a poor indicator of the contribution of exports to domestic economic growth.
The second chart shows the relationship between U.S. consumption growth and Canadian southward exports. The U.S. Bureau of Economic Analysis's personal consumption expenditure is used to measure consumer spending. The brown line, showing the growth and decline in domestic exports, moves more closely with U.S. consumption levels than with currency values. This strongly implies that rising American retail spending, not a weaker loonie, has the larger effect.
U.S. consumer spending is only improving gradually but the stubbornly weak U.S. dollar means the two charts are good news for the Canadian economy. The potential for American fiscal stimulus provides a bright forecast for U.S. consumption. And, if currency were the main driver of Canadian exports, we'd expect the weaker greenback to crimp trade, but the first chart suggests this isn't the case.