OTTAWA — Transportation companies and warehousing operations are among the most exposed to currency fluctuations, according to a report released by the Conference Board of Canada.
Authors Louis Theriault and Valerie Poulin recommend that Canadian firms invest abroad to hedge against the "extreme volatility" the country’s dollar has displayed in recent years.
The report, entitled ‘Dollar Volatility: Who Should Care’ says companies need to learn to export and import in a way that offsets exposure to the Canadian dollar.
"In today’s global economy, Canadian industries must continue to internationalize in order to remain competitive," they write.
"Businesses, particularly small and medium-sized enterprises, need to understand the impact that dollar volatility can have on all elements of their operations."
The authors say this requires companies to examine where they fit in global supply chains and identifying both risks and opportunities in the global marketplace.
"It also means forming strategic partnerships with other firms and industries, which offer the opportunity to share resources, expertise, risk, and capital in foreign markets," he say.
The report also makes the point that policy makers can undertake indirect measures to prepare for and mitigate exchange rate effects on Canadian industries.
"The government must continue to work toward increased trade liberalization, including the reduction or elimination of the remaining tariffs and, perhaps more importantly, of non-tariff barriers on imports, especially those that are used in the production process."
The Canadian dollar has risen 25 percent against its U.S. counterpart over the past 12 months, making the country’s goods more expensive abroad. The currency has traded as high as $1.09 per Canadian dollar and as low as 62 U.S. cents since 2002.
Theriault and Poulin built an index to identify industries’ exposure to the currency and found that retailers, wholesalers, utilities and transportation and warehousing companies were the most vulnerable. Builders and restaurants were the least exposed, according to the report.
In fact, a recent National Bank Financial report forecasted that a Loonie too strong could undermine export sales growth out of central Canada, especially from the manufacturing sector.
"Canada needs renewed policies on foreign direct investment, both inward and outward, that reflect the new reality of the significance of FDI in international trade and its benefit as a currency hedging tool," they wrote.
The Canadian dollar last week rose for a 10th consecutive session, the longest streak in 23 years.
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