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Canadian dollar--Canadian exporters struggle with parity.

A heavy emphasis on exports finds Ontario suffering the worst in the wake of the Canadian dollar's rise over the American greenback, according to Michael Gregory, senior economist with BMO Capital Markets.

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"Ontario's certainly been hit the hardest, but the general bottom line is that the state of the dollar is not a good thing," Gregory says.

In a reversal that would have seemed impossible even a few years ago, the Canadian dollar has seen a 25 per cent appreciation over the last year, while the United States currency has taken a 20 per cent plunge. Having reached parity on Sept. 20 and flirting with $1.10 (US) in early November, the Canadian currency has since been wavering mid-way between those two points ever since.

The downturn in the general American economy followed by the rise in the value of Canadian commodities, is attributed to the weakened U.S. dollar.

Paul Ferley, assistant chief economist with Royal Bank of Canada, says the increasing price of oil has played a key role in driving up the dollar. In turn, this has caused additional trouble for Ontario, an importer of oil with already high energy costs.

While areas of the province with heavy ties to mining have thrived on the strong dollar and strong commodity prices, the impact on major exporters and the forestry industry in particular has been devastating.

Earlier this year, representatives from Abitibi-Consolidated said a 1-cent increase in the Canadian dollar against the United States is equivalent to a $30 million hit to their operating revenue.

"You can ask the Ontario government to do everything and they can do it all, but every time the dollar goes up a penny, it wipes out any sort of initiative they've done," Andrew Casey, a spokesperson with the Forest Products Association of Canada.

"It's absolutely killing the industry because we sell the lion's share of our products south of the border."

Other industries such as tourism have not gone untouched by the high value of the Canadian dollar against the U.S. greenback.

Gerry Cariou, executive director of the Sunset Country Travel Association, says northwestern Ontario outfitters are being forced to institute rate increases in order to make up the difference between the currencies.

Northern retailers are unlikely to feel quite the same pinch as they did two decades ago when the Canadian dollar was roughly $0.90US, according to Livio Di Matteo, economics professor at Lake-head University.

The eruption of cross-border shopping seen in the late 1980s and early 1990s is unlikely to be reproduced due to complications in border crossing, and a larger variety of retail goods sold off the Internet.

The duration of the Canadian currency over the United States is difficult to predict, though Di Matteo expects it will be hard for the Canadian dollar to maintain its strength for much longer.

There are indications the American interests may be changing through 2008, economists say.

According to internal studies, the ideal rate for the Canadian dollar is between 80 and 90 cents US. At that point, the rate would neither help nor hinder, Gregory says.

Having a strong dollar is not all bad news.

Historically, the low Canadian dollar has allowed exporters to ignore "operational mistakes" and corporate excesses, Gregory says. As a result, the high dollar and the tough times may spark a renaissance of creativity in solving pre-existing industry concerns.

Di Matteo agrees, adding that Northern manufacturers may now find themselves with some incentive to re-examine their operations and how to compete directly on the value and quality of their products.

www.bmocm.com

www.rbc.com/economics

www.fpac.ca

www.ontariossunsetcountry.ca

www.economics.lakeheadu.ca

QUICK FACTS

Dollar vs. greenback: Last time the Canadian dollar reached parity with the U.S. greenback: Nov. 25, 1976

By NICK STEWART

Northern Ontario Business
COPYRIGHT 2007 Laurentian Business Publishing, Inc.
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Title Annotation:NEWSMAKERS of the YEAR
Author:Stewart, Nick
Publication:Northern Ontario Business
Date:Dec 1, 2007
Words:640
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