CANADIAN Petro-Dollar

Cahier spécial : A policy vision to escape the race to the bottom

CANADIAN Petro-Dollar

The dramatic rise of the Canadian dollar has contributed painfully to the erosion of Canada’s international automotive trade performance, and heightened the challenge our industry faces in winning future investment.

Auto Industry - Petro dollarsFor many years Canada was considered a low-cost destination among developed auto-manufacturing jurisdictions.

This partly reflected Canada’s strong productivity results,  the savings associated with our universal health care system, and other “real” advantages.

Beginning in 2002, however, Canada’s currency began a long ascent, that has added over 60 percent to its value (compared to the U.S. dollar) in a decade (see Figure 8).

That means the cost of Canadian-made goods and services (and the cost of Canadian labour) appears 60 percent higher, in relative international terms, than it did in 2002.

1.      This shock has negatively affected not only manufactured products,

2.      But also any other non resource product which Canada sells to international purchasers (such as tourism or tradable services).

Analysts agree that the take-off of Canada’s currency since 2002 reflects the association among financial investors and currency traders between Canada’s currency and the price of oil.

Indeed, that association is verified by statistical analysis of the correlation between the loonie’s exchange rate and the global price of oil; movements in oil prices explain over 85 percent of the variation in the Canadian-dollar exchange rate since the turn of the century (see sidebar: In Lock Step).

Tout à fait vrai, peu importe ce que les autres disent, le marché de la spéculation le voit exactement de la même façon, un baril de pétrole haut, un dollar canadien haut.

Le dollar canadien, une devise liée au pétrole

Le Canada, dixième puissance mondiale, fait face à un dilemme complexe pour préserver sa compétitivité et améliorer une situation économique intérieure très fragile.

Excédent commercial en hausse grâce à l'énergie

En effet, l'économie canadienne repose beaucoup (beaucoup trop ?) sur ses exportations vers son partenaire commercial principal : les Etats-Unis. La balance commerciale a affiché en janvier des niveaux record avec une hausse des exportations vers les Etats-Unis de 5,3% et de 2,5% vers l'Europe.

Principaux moteurs de cette hausse ? Métaux, alliages, or et bien sûr le pétrole. La vente de brut a atteint 6,9 milliards de dollars, soit un record historique.

Pétrodollar canadien...

Depuis octobre 2011, le dollar canadien s'est apprécié de 13%, dépassant la parité avec le dollar américain et a ainsi suivi la tendance des matières premières, pétrole en tête. Cette corrélation se renforce davantage avec un baril élevé. Le pétrole, issu en partie des sables bitumineux, a un coût de production compris entre 25 $ et 30 $ le baril, là où cela ne coûte que 1 $ dans les exploitations traditionnelles.

C'est pourquoi vous pouvez noter une accélération de la hausse du Huard, à la fois sous l'effet de la politique monétaire des Etats-Unis mais surtout lorsque le baril WTI approche les 100 $, rendant par la même occasion le brut canadien plus cher (2).

Dollard vs Pétrole

Some observers contend that an export industry should not ultimately be based on an undervalued currency.

Encore une belle théorie économique, mais dans les faits depuis 20 ans la Chine manipule sa monnaie pour qu’elle reste sous-évaluer, c’est bien beau la vertu économique et utopique, mais entre temps les compagnies se délocalisent vers la Chine et nous, nous subissons du chômage de masse.

Fair enough. That is quite different, however, from the present circumstance, in which Canada’s currency is clearly overvalued. With the loonie trading around par with its U.S. counterpart, Canadian costs look artificially expensive in the eyes of international.

The fundamental reason for the lower-than-par purchasing power of the loonie is that average prices in Canada are higher than in the U.S.

Any cross-border shopper can immediately attest to this fundamental reality (see sidebar, Canadians Pay More). On average, across the entire bundle of goods and services produced in the economy, a set of purchases costing $100 in the U.S. costs $123 in Canada.

Many analysts predicted that a stronger Canadian currency would in fact lead to decreases in Canadian consumer prices (since anything that is imported should be cheaper for Canadians when the exchange rate is high). In practice, however, this has not occurred: importers and retailers have kept the larger profit margins from lower import costs, instead of passing them on to Canadian consumers.

It is common knowledge among Canadians that at current exchange rates, most consumer prices are significantly higher here than in the U.S.

Auto Industry - Price differential

Canada’s overall trade and current account balances, for example, have deteriorated markedly during recent years, despite the soaring value of petroleum exports. The link between the dollar and oil prices more reflects financial and speculative motivations, not real trade and investment flows.

And in contrast to many other jurisdictions (including Japan, Brazil, China, and even the U.S.14), Canada’s policy-makers have been content to accept this speculative, financial outcome as a “natural”, even desirable result – rather than acting to push the exchange rate toward a level more compatible with Canada’s long-run competitiveness.

Tables des matières

1.       A policy vision to escape the race to the bottom

Summary :

Global pressures on the industry are more severe all the time

Impacts of a Canadian dollar

we must adopt a new approach

2.       Decline in auto manufacturing employment in Canada

To Hell and Back – Canada’s Auto Industry After the Crisis

Industrialized countries experienced a decline

Preventing plant closures

Government intervention

3.       Automotive trade deficit reached an all-time record of $15.6 billion

Auto  Industry - Free Trade

Canada-U.S. Auto Pact

World Trade Organization

Trade Balance


4.       CANADIAN Petro-Dollar

CANADIAN Petro-Dollar

5.       Race to the bottom

Race to the bottom

Donc, à qui profite la mondialisation ?

Les gagnants

6.       Productivity, Investment and Technology

Productivity, Investment and Technology


Investment and Technology

7.       Center of gravity is clearly shifting south

Re-thinking Canada’s : A New Policy Vision

And it won’t stop there

We do not accept this grim scenario as natural, efficient, or inevitable.

8.       Free trade theories failures

Re-think Trade Policy

With every other trading partner

Optimistic predictions of the free trade theories failures

Canadian trade negotiators have a responsibility

9.       The Bank’s power to bring down the dollar is unquestioned

Intervene to Reduce the Canadian Dollar Exchange Rate (1)

Canadian dollar r far above value

Theory freely floating exchange failures

Bank of Canada interventions.

10.    Restrict foreign resource takeovers

Intervene to Reduce the Canadian Dollar Exchange Rate (2)

Slowing down resource developments (especially in the oil sands)

Preventing foreign takeovers of Canadian resource assets

11.    Canada back is a lack of political creativity


Willingness by policymakers to play an active role.