Canadian dollar may soon be on par with U.S.: CIBC

The Canadian dollar continues its ascent this week, and at least one financial expert thinks it may soon be on par with the U.S. dollar.

The dollar was holding strong at US$0.94 on June 4 after reaching its highest levels in nearly 30 years last week. A strong loonie is often bad news for companies in the manufacturing sector, and many find it hard to remain cost-efficient and competitive.

Economists say strapped manufacturers shouldn’t expect the high dollar to go away any time soon. CIBC World Markets‘ chief economist Jeff Rubin predicts that the Canadian dollar will “climb to parity with the U.S. dollar by year-end and remain in that range over the first half of 2008.”

The loonie hasn’t been on par with the U.S. dollar since 1976. Rubin also noted that the Canadian economy is stable enough to withstand a strong dollar.

“At a minimum, the loonie has a green light from its central bank, and between red-hot commodity and energy markets and huge capital inflows associated with an avalanche of M&A deals, the currency has plenty of octane left to take a concerted run toward parity against the greenback,” he said.

Companies in the Canadian plastics industry have increasingly cited the strength of the dollar when paring down their local operations. For instance, Husky Injection Molding Systems Ltd. pointed to inefficiency and government inaction when it cut 85 jobs at its Bolton, Ont. campus in March.

“It has become increasingly inefficient and costly to manufacture products in Canada that are designed for, and shipped to, markets on the other side of the globe,” said company president John Galt in a statement. “The high Canadian dollar and some ineffective research and development tax structures add further difficulties to successfully manufacture in Canada for overseas markets.”

Over the weekend, Ontario Finance Minister Greg Sorbara told a Liberal gathering that the federal government should work to lessen the impact of a high Canadian dollar on the manufacturing sector. Sorbara also indicated that he plans to lobby for increased federal assistance.

The federal government has introduced measures and programs over the last few months that are designed to help manufacturers become more competitive. The 2007 federal budget included a two-year write-off on investments in machinery and equipment.

Canadian Plastics will continue to follow the rise of the Canadian dollar and the impact it is having on our industry.