Canada’s falling loonie has added extra dollars to the pockets of residents who rely on financial assistance from abroad.
Foreign investors in real estate and local exporters are also enjoying benefits from the dip in our dollar, which is at its lowest level since the spring of 2003, and expected to go lower, as analysts forecast the loonie could lose another 10 cents.
The loonie dropped just under $0.70 U.S. at the beginning of the year, reaching 69.9 cents on January 12.
Added cash in hand
Azra Riffat, a retired officer from Pakistan, lives in Toronto and is enjoying the benefits of the low dollar.
Riffat immigrated to Canada 10 years ago. Unable to work because of her responsibilities at home, caring for her 80-year-old mother, Riffat receives support from her siblings who transfer money to her account for their mother’s medical and household expenses.
“My sister is in the UK and brother in the U.S.,” says Riffat. “They cannot physically take care of our mother, so they send in money.”
“The lower Canadian dollar only benefits wealthier individuals who have resources to transfer [funds] to Canada.”
Over the past 12 months, the Canadian dollar has lost 15 per cent of its value against the U.S. Because the majority of the funds transferred to Canada are in U.S. dollars, this means up to an additional $45 for every $100 US converted to Canadian currency.
“Last month when I checked the quote on an exchange rate of selling $100 US to buy Canadian dollars, it was 144.50,” says Riffat.
Immigrants often come to Canada as families, but men sometimes return to their countries of origin because they are unable to find work. In other cases, men with high-paying positions in other countries move their families to Canada to give their children a more promising future. These are some of the families who are benefiting from the current exchange rate.
“The lower Canadian dollar only benefits wealthier individuals who have resources to transfer [funds] to Canada, provided that [the funds come from] countries where the local currency is also in high value,” says Mustafa Koc, professor of sociology at Ryerson University in Toronto.
Similarly, new immigrants who relocated to Canada during the past year have the added advantage of being able to stretch their savings for a longer period, compared to those who settled before, adds Majid Kazmi, a banker and immigrant from the Middle East.
Good for real estate
The low currency this year, complemented by low interest rates, creates an optimal situation for immigrants buying homes and foreign investors alike, as their buying power in the Canadian housing market has increased, particularly in Vancouver and Toronto, says Wayne Ryan, Managing Broker at Remax-Vancouver.
“Vancouver’s high-end properties are not flying off the shelf,” says Ryan, but explains that detached homes, which can cost anywhere between $3 and $5 million, are popular among foreign investors.
Canada is seen as a “safe-haven” for foreign capital and the falling currency helps to further encourage it.
Some potential buyers are able to take advantage of liquidating their assets in their countries of origin and investing in the Canadian real estate market. Analysts like Eytan Lasry, who teaches in the business department at Toronto’s York University, suggest that Canada is seen as a “safe-haven” for foreign capital and the falling currency helps to further encourage it.
Lasry adds that the best thing for both home buyers and investors is the low interest rates – which may sink even lower – as they make debt manageable.
“It’s a global economy,” he explains. “When money goes low, you attract more, topped with low interest rates makes the debt servicing easy.”
Exporters tap gains
Canadian businesses, including those in food and consumer product industries, that export to the U.S. are also enjoying the extra profit because of the lower exchange rate.
In a 2014 report, Moody’s Investors Service stated that the Canadian dollar depreciation is a positive for many Canadian industries, such as pulp and wood products.
“Their costs are in Canadian dollars and their revenues are coming from abroad in currencies that are better off.”
Also, small businesses that export services, like catering and trucking to the U.S. and Mexico, tend to gain from the falling loonie.
“Their costs are in Canadian dollars and their revenues are coming from abroad in currencies that are better off,” explains Kazmi.
Fuzail Ata Pirzada, who migrated from the UK 16 years ago, runs a catering business in Mississauga. He provides service to Asian-themed functions and festivals in the U.S. too, close to the border.
“I am paid in U.S. dollars, but the cost of the vegetables and meat has also increased in Canada, which offsets my profits,” he says. He adds that during winter, business slows down, but he is hoping to reap the benefit of the low dollar when spring arrives, and the wedding season begins.
“It’s a good time to invest in the Canadian export industry, with a controlled cost of production on manufacturing and producing goods, and enjoy the pricing advantage later,” Kazmi suggests.
As the Bank of Canada Governor, Stephen Poloz, has said repeatedly, the loonie is a casualty of the falling price of oil. He says it could take three years for Canada to work through the economic issues that are currently driving its dollar down.