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A lot of things go along with being an energy superpower — a super currency, for example. Eight years ago, when oil cost barely $20 per barrel, the Canadian dollar fell to almost 61 cents against the greenback. With oil now reaching four times that price, the currency is nearly at par with the U.S. dollar, and tomorrow, when oil prices are back in triple-digit range, the Canadian dollar will trade at a healthy premium.


Like it or not, Canadians had better get used to the fact that their money has turned into a petro-currency.


That’s not without its benefits — a premium Canadian dollar will undoubtedly draw the return of some long-lost NHL franchises. But while Winnipeg, Quebec City, and even Hamilton may be the beneficiaries of franchise transfers from Dixie and Phoenix, that’s just about all Canadians will see from the U.S. When American tourists realize that their Canadian hotel and restaurant bills are priced in dollars 10 to 20 per cent higher than their own, they won’t be planning many return visits.


While triple-digit oil prices may lift millions of barrels of oil from Alberta tar sands, they are far less bullish for the country’s industrial heartland in Ontario and Quebec, where a soaring Canadian dollar will virtually bury the manufacturing sector. Nor are they bullish for the Maritimes, where they burn lots of imported oil from Venezuela to generate both electric power and home heating.


Canada may far and away be America’s No. 1 energy supplier, but, apart from Alberta, its own economy is just as vulnerable to triple-digit oil prices as the American economy is.


Actually, it’s even more vulnerable because of the currency angle. The impact of higher oil prices on the U.S. economy is cushioned by the tendency of oil prices and the greenback to go in opposite directions, not only because oil prices are denominated in U.S. dollars, but also because, as the world’s largest oil importer, higher crude prices swell America’s trade deficit. That may not help Americans when they fill up their gas tanks, but it sure makes their wages more competitive against those belonging to workers who get paid in the yen, euro, or Canadian dollar.


North of the border, the opposite is true. Not only are oil prices rising, but they’re lifting the currency as well — a double hit to the competitiveness of the country’s manufacturing sector. As triple-digit oil prices pull more and more oil out from tar sand production, the higher the Canadian dollar will soar, and the fewer autos and less machinery and steel the rest of the economy will produce.


We’ll see how attractive an economic model that becomes to Canadians over time, and whether they’ll want to continue to be at the other end of America’s gas nozzle.


(Courtesy of The Globe and Mail)

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This is a bit misleading. Manufacturing has always been a secondary sector, this is part of the reason that the collapse of domestic industry of the 70's and 80's didn't hit us as hard nationally as it did the US. Also worth noting, sure a lower dollar makes wages more competitive but let's face it - manufacturing is increasingly going offshore in any case - how many knitting mills are still open in Montreal compared to 20 years ago? It's no different in the US manufacturing sector. Detroit was once a thriving city, lest we forget. As far as the tourism argument is concerned, sure fewer Americans will be visiting, but there's a whole world out there.


We hear the same doom and gloom every time the loonie is on a rise, but it comes down to the same thing - there's a lot of people in big business that would like to see Canada run like some kind of banana republic. As Rick Mercer once pointed out in answer to the threat of Mexico stealing away all of Canada's jobs, if all it took to succeed in international business was a weak economy, environmental deregulation and a government eager to accomodate big business, Newfoundland would be the richest province in Canada.


It's easy to make the kinds of arguments this article makes if you paint the economy as a relatively static entity - and as anyone with even the vaguest understanding of international economy can tell you, that's simply not the case. Some sectors will suffer, others will benefit.


A strong currency by itself does not mean a strong or weak economy, there are many, many factors at play. A rising currency, however, does present certain opportunities that business predicated on a weak currency tends not to be all that interested in.

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