2023-10-25 19:52:11
(Toronto) The Canadian dollar fell once morest the US greenback following the Bank of Canada’s decision to maintain its key interest rate at 5.0%. Here’s what that means for Canadians.
How is the loonie doing?
As of Wednesday followingnoon, it was trading at 72.55 cents to the U.S. dollar, up from 72.83 cents on Tuesday.
It was trading above 75 US cents in July, while its current level brings it closer to a brief low of 72.43 US cents reached in March. It was also worth around 72 US cents last October and it plunged below 69 US cents in March 2020, at the start of the pandemic. It was trading above 82 US cents in May 2021.
Who benefits from a weak loonie?
A weaker Canadian dollar can boost sectors like tourism, and increases the number of foreign visitors, particularly those from the United States, because they get more bang for their buck.
The weaker loonie may also translate into greater profits for Canadian companies that export, such as those in the oil and gas industry, forestry and manufacturing.
Who is it more difficult for?
A weaker loonie makes foreign travel more expensive for Canadians, including those planning to visit sun destinations during the winter.
A weaker loonie also makes imports more expensive. In an opinion piece published last year, former Bank of Canada Governor Stephen Poloz explained that a slide that took the loonie from regarding 80 cents US to 73 cents US or 74 cents US would result in an increase in import prices of 8% to 9%.
He also pointed out that a weaker dollar was also a symptom of broader problems, including weak business investment, which might, in turn, lead to weakening productivity and economic growth.
What does this mean for inflation?
As the weak dollar pushes up the prices of imports, some observers fear this will accelerate inflation.
The effects are limited, however, the Royal Bank of Canada argued earlier this year, noting that services dominate Canadian spending. Even for imports, regarding a third of the cost comes from domestic services like transportation and retail.
Canada has also diversified its imports from the United States, and the loonie has performed better once morest other currencies like the Chinese yuan, further reducing the impact on inflation, Royal continued. .
He noted, however, that a decline in the loonie might still result in an increase in prices, including for approximately 20% of imported foods. Categories like fresh fruits, nuts and vegetables, 81% of which are imported, for example, might see their prices increase.
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