Canada's Lofty Dollar, Source of Pride, Cuts Profits

(Bloomberg) -- Canada's soaring dollar, a symbol of the energy-rich nation's emerging global clout and a source of national pride, is turning into a bust for many businesses.

Only about two months ago, Canada hit parity with the U.S. dollar for the first time in 31 years. Now many Canadians have had their fill: Companies ranging from jetmaker Bombardier Inc. to lumber producer Canfor Corp. say their currency's strength is cutting into profits and jobs.

``There is not much pride in declining business,'' said Ken Lewenza, a Canadian Auto Workers union leader in Windsor, Ontario, where parts suppliers are closing operations and the casino just cut another 200 jobs. ``The squeeze is on, and our lives are miserable.''

Economists have slashed growth forecasts for 2008, and the Bank of Canada may cut interest rates as early as its next policy meeting tomorrow. Governor David Dodge said Nov. 17 that ``downside risks'' to the global economy have increased and might start to affect rates, as the strong currency and slower worldwide growth curb exports.

Canada's dollar has gained 17 percent against the U.S. dollar this year, the second-best performer among the 16 actively traded currencies Bloomberg tracks. The currency traded for $1 at 4:03 p.m. today in Toronto. A stronger currency reduces the value of sales in the U.S., which buys about 80 percent of Canada's exports.

Falling Exports

Canada's trade surplus narrowed to a nine-year low of C$2.7 billion ($2.7 billion) in September, as exports fell to the lowest level in 11 months and imports rose 2.2 percent, Statistics Canada said Nov. 9.

David Wolf, Merrill Lynch Canada's chief strategist, forecasts that Canada's economic growth will slip to 1.7 percent next year. That would be the slowest pace since 1996 and is down from 2.8 percent last year, according to Statistics Canada.

In a note to clients, Wolf said the strength of Canada's dollar, along with weaker U.S. demand, may help reduce profits for Toronto Stock Exchange-listed companies by 3.1 percent next year.

Toronto-based buyout firm Onex Corp. reported its largest quarterly loss in three years last month, and Montreal's Canadian National Railway Co. said the currency contributed to a third-quarter profit decline.

Vancouver-based Canfor, the country's biggest lumber firm, reported its third straight quarterly loss Nov. 1, as the U.S. homebuilding slump sapped demand, and Canada's strong dollar cut the value of U.S. sales.

`Liquidation, Bankruptcy'

If the dollar stays near parity, ``the entire forest- products industry practically is going to be in liquidation, bankruptcy, and there is going to be an enormous loss of employment,'' said Stephen Jarislowsky, a former Canfor director who is chief executive officer of Montreal-based Jarislowsky Fraser Ltd., which manages about $63 billion in investments.

``It's very hard to compete,'' Laurent Beaudoin, CEO of Montreal-based Bombardier, told Industry Minister Jim Prentice Nov. 21 during a question-and-answer session after a speech the minister gave in Toronto. Without the government or the Bank of Canada taking steps to mitigate the currency's advance, Beaudoin said, ``the manufacturing sector in Canada can't survive.''

Labor and business leaders have come together on the issue. In a rare joint statement today, the Canadian Labour Congress and Canadian Manufacturers & Exporters -- a lobby group for factory owners -- called on Dodge to cut interest rates tomorrow.

Retail Sales

Retail sales also fell in September, the third drop in four months, which Toronto-based Scotia Capital Inc. economist Karen Cordes called ``a strong indication that cross-border shopping is affecting domestic sales.''

Mail volume from the U.S. rose 15 percent in October from a year earlier, according to Canada Post spokeswoman Catherine Lortie. Same-day trips to the U.S. by car hit a six-year high of 2.1 million in September, 7.8 percent more than a year earlier.

Jay Sullivan, an Oakville, Ontario, resident, said his wife sent him to a Buffalo, New York, shopping mall for a pair of shoes, which he found for half the C$120 Canadian price.

``We are getting ripped off,'' said Sullivan, 37, who plans another trip to take advantage of cheaper car prices.

Car imports from the U.S. rose 68 percent in October from the previous month to almost 25,000 vehicles, according to the North American Automobile Trade Association.

Reason to Stay

Some retailers are giving consumers reason to stay in Canada. Wal-Mart Stores Inc., the world's largest retailer, announced price reductions in a Nov. 22 statement, saying, ``It's true! A strong dollar means lower prices for you at Wal- Mart Canada.''

Canada's currency started rising after hitting a record low in 2002. Since reaching an all-time high of 90.58 Canadian cents per U.S. dollar on Nov. 7, it has weakened 10 percent, as government reports show an economy struggling to cope.

Lewenza, the 53-year-old auto worker, said Canada's dollar must fall further to help the car industry in Ontario, which makes more vehicles than Michigan.

He was on the factory floor of the Benteler Automotive plant in Windsor last month to tell workers that efforts to keep the facility open had failed and they might be laid off. Benteler Automotive, a unit of Paderborn, Germany's Benteler AG, builds suspension parts at the plant for Chrysler LLC's Pacifica sport-utility vehicle, which the automaker is discontinuing.

Job losses have already shrunk Local 444 by about 3,000 union members -- or 23 percent -- since 2002, Lewenza said. The dollar ``is one more storm cloud we did not need.''