Effects of a Weakening Canadian Dollar

April 20, 2014

By: Michael Calderone

Amidst a weakening Canadian dollar, Canadian manufacturing companies are experiencing growth in the industry. The RBC Canadian Manufacturing Purchasing Managers’ index (PMI), which is essentially a measure of the manufacturing sector’s conditions, increased from a seasonally adjusted 52.9 in February, to 53.3 in March. Anything above the 50-point mark signals growth. Analysts are attributing this 0.4 increase in the PMI rating mainly to the weakening Canadian dollar, which has sparked interest from international counterparts who are able to purchase Canadian goods at a lowered price.

Analysts believe that the relative depreciation of the Canadian dollar, although responsible for growth in the manufacturing industry, has also resulted in higher input costs for businesses. Despite the rise in input prices, new export orders had still risen from 50.7 in February to 52.4 in March, signaling that the appreciation of input prices has had a negligible impact on the countries exports.

This change in Canada’s economic conditions provides an opportunity for domestic manufacturers to take advantage of the economies’ current position. Craig Wright, chief economist at RBC confirmed this sentiment, saying, “We continue to expect that underlying economic conditions – a strengthening U.S. economy and a weaker Canadian dollar – will lay the foundation for a boost in domestic manufacturing in the near term,”.

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