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Canadian dollars (loonies) fall through the air in a photo illustration in Vancouver, B.C. Thursday, Sept. 22, 2011. (Jonathan Hayward / CP)
Canadian dollars (loonies) fall through the air in a photo illustration in Vancouver, B.C. Thursday, Sept. 22, 2011. (Jonathan Hayward / CP)

Swinging loonie keeping exporters off balance Add to ...

Canadian exporters are gratified to see a lower Canadian dollar , but the currency’s volatility and the signal that its rapid decline sends about the health of Canada’s economy are dampening any celebrations.

The dollar has dropped dramatically in recent days, falling more than seven cents in less than three weeks, from about $1.02 (U.S.) to below 95 cents Tuesday. In July, it was at $1.06.

A lower dollar is good for exporters because their goods are less expensive to U.S. customers, but their joy is tempered this time around, partly because of the wild volatility.

“The swing is finally going in the right direction for us,” said Bruce Catoen, chief technology officer at Mold-Masters Ltd., an Ontario company that builds equipment used by makers of plastic parts. “We’ve been living with the rising Canadian dollar as an impediment for years, so to see it come back a bit is a huge advantage for us, given that we export most of what we produce.”

However, because the Georgetown-based company had a program in place to hedge against a high dollar, it will lose some of the benefits of the recent drop, he said.

But the biggest concern is that the wild swings in the dollar’s value are making it very hard to plan, Mr. Catoen said. The company can’t possibly react every time there is a major shift by changing its pricing, or by moving manufacturing from one country to another.

“We are seeing some irrational swings in the stock market and in the dollar right now,” he said. “We can’t make our business decisions based on [those] short-term irrational swings. We have to take a long-term projection of a more stable environment.”

At Polaris Minerals Corp., a company that ships construction aggregate from Vancouver Island to California and Hawaii, more than 90 per cent of sales are in the United States, but production costs are generated in Canada. As a result, the lower dollar “is very helpful for us,” said chief executive officer Herb Wilson.

But the volatility of the dollar is also an issue for Polaris, Mr. Wilson said. “Steady movements in one direction you can accommodate, but rapid movements in either direction ... you just don’t have a business model that can adjust overnight. We’d much rather see trends, as opposed to violent swings.”

He noted that when Polaris went public in 2006 the Canadian dollar was at 84 cents, and the company’s long-term models were developed on that basis. “So it is still 10-per-cent more expensive than we envisioned, but the [recent] move does favour us.”

Jayson Myers, president of Canadian Manufacturers & Exporters, said his concern is that the plunge in the Canadian dollar is a symptom of the overall weakness in the Canadian economy, particularly among exporters.

“The concerns around the global economy are clearly affecting customer demand for Canadian products,” he said. If those international customers can’t afford Canadian goods, or can’t finance their purchases, our economy will suffer.

“What [the low dollar]is really reflecting is the uncertainty and concern out there,” he said.

Mel Svendsen, CEO of Standen’s Ltd., a Calgary-based manufacturer and exporter of equipment for auto and farm markets, said he prefers a “softer” Canadian dollar because it helps the company’s competitiveness. But his firm has hedged against a higher dollar, and that means the company won’t get the full gain from the dollar’s drop. “You can’t have it both ways,” he acknowledged.

Standen’s hedging is not done through financial instruments, which can be expensive, he said. Instead, the company has been buying raw materials from suppliers – even Canadian ones – in U.S. dollars. It has also bought more of its supplies from the United States in the last while. Doing that means “we can nip off some of those abrupt changes” in the relationship between the U.S. and Canadian dollars, Mr. Svendsen said.

“More and more manufacturers here in Canada have come to the conclusion that they have to have more of their supply chain priced in U.S. dollars,” he said.

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