Ottawa - At the committee’s hearings on the Canadian dollar most witnesses agreed that Canada’s floating exchange rate is best for the country, although they noted that it ties the Canadian dollar to oil prices. Falling oil prices are largely to blame for the Canadian dollar’s decline. While the low exchange rate has led to higher import prices, the country’s tourism and manufacturing sectors have flourished.

The Senate Committee on Banking, Trade and Commerce today released a report on the state of the loonie called The Fluctuating Canadian Dollar: What it means for Canadians. The report offers a diagnosis for the ailing dollar and outlines the effects. Its findings show that the lower loonie has been a burden and a boon.

The chief culprit is the decline of oil prices. As the Senior Director, Economic, Financial and Tax Policy of the Canadian Chamber of Commerce, puts it, oil prices and the dollar “are like an old married couple because they go everywhere together” — a $10 decrease in the price of oil generally causes the dollar to fall by between three and five cents.

According to the Vice President and Deputy Chief Economist of the Royal Bank of Canada, 75 per cent of the exchange rate’s decrease is reflected in the fall in energy prices, which is partly explained by an excess supply of oil; witnesses estimated that 1.2 million to 2.0 million barrels per day of excess oil were produced in 2015.

Manufacturing and tourism sectors have also benefitted. According to the Senior Economist from Desjardins, in 2015, over 37,000 jobs have been created in the manufacturing sector — the highest quantity since 2012 — while the Senior Director, Economic, Financial and Tax Policy of the Canadian Chamber of Commerce expressed that auto, aerospace and communications technology exports have all increased.

Witnesses told the committee that Canada requires $177 billion in infrastructure spending to repair existing infrastructure and to stimulate the economy; the Conference Board of Canada’s Senior Vice-President and Chief Economist estimated that the economy benefits by $1.20 for every dollar spent on infrastructure, though others suggested larger-than-anticipated federal deficits could be putting downward pressure on the exchange rate.

Quick Facts from Witnesses

• Canadian consumers have been paying between 30 per cent and 40 per cent more for American-made goods since the dollar began its decline. The price of fresh fruits and vegetables has also increased by 13 per cent between November 2014 and November 2015.

• Canadians spent $6.7 billion less on fuel in the first three quarters of 2015 compared to the same period in 2014 — an amount equivalent to $470 per household. Witnesses said this likely offset the higher prices paid for imported goods.

• U.S. visits to Canada increased by eight per cent between 2014 and 2015; one witness estimated the increase in tourism has boosted last year’s gross domestic product by $4 billion to $5 billion.

Quotes

"What we wanted to understand from our hearings is what the various implications for our economy are when the value of the dollar falls. As we learned, they are not all bad. But they are all relevant to the everyday lives of Canadians."

- David Tkachuk, Chair of the committee.

"Fortune favours the bold and with the high dollar we had the opportunity to invest into technology and other areas, but our private sector did not pursue this strategy. Now we reap the rewards of this inaction. Let’s hope we can be brave enough to weather this low dollar storm."

- Céline Hervieux-Payette, Deputy Chair of the committee.

Associated Links

• Click here for a copy of the report.
• To follow the Committee’s proceedings and learn more about the Standing Senate Committee on Banking, Trade and Commerce, click here.
• The Senate of Canada is on Twitter: @SenateCA, follow the committee using the hashtag #BANC.

For more information, please contact:

Marcy Galipeau
Committees Liaison Officer, Communications
Senate of Canada
(613)944-4082
marcy.galipeau@sen.parl.gc.ca