The following is excerpted from today’s edition of “globeandmail.com”.
Colin MacDonald has weathered currency fluctuations before, and he has a strategy to fight this one as well.
Mr. MacDonald’s company… buys most of its supplies in Canada with Canadian dollars, but exports 91 per cent of its goods in the currencies of its target markets. However, it is particularly adept at hedging, an analyst said yesterday.
The dollar temporarily topped 90 cents (U.S.) yesterday before giving up ground, continuing its rapid rise against the weakened U.S. currency. And at least one bank believes it will hit parity with its U.S. counterpart by the end of the year.
“It always does have some impact on the bottom line when the currency changes,” [Mr. MacDonald] said. “It just adds another complexity to the business.”
“Obviously hedging is always an option and you typically hedge out those sales that you have some contract rate at because you want to create certainty with those sales. You have assumed some exchange rate when you have made the contract, so you want to lock that in.”
The company typically sets its sales contracts between six months and a year in advance and, so far, the company is “enjoying a good year sales wise,” Mr. MacDonald said.
“The other response to currency fluctuations is to create value for your customers, so that you can pass some of the necessary pricing increase along over a reasonable period of time,” Mr. MacDonald said.
The dollar has been rising rapidly, posing a problem for export-sensitive manufacturers who sell in the United States, although after breaching the 90-cent mark yesterday it fell back to 89.33 cents, down from Tuesday’s close.
The dollar “has been on bit of a tear for the last little while” and could reach parity with the weakened U.S. currency before the end of this year, Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said in an interview….
“And we are not expecting a significant improvement in commodity prices at this point, so it will be quite a difficult situation for a lot of our Canadian industries. It’s already a very difficult environment to begin with. Beyond the currency, we have border issues, we have the very weak state of global demand,” he said.
Mr. Osborne and his fellow strategists at the Toronto-Dominion Bank said the dollar is rising because the U.S. currency is experiencing broad-based weakness, and the Canadian economy is fundamentally sound.
“We’re forecasting parity, and we think we’ll hold around par until the early part of next year, and then we will see the Canadian dollar retreat as the U.S. economy stabilizes and the U.S. dollar continues to improve.”
The loonie was last at par last summer before tumbling to the 77-cent range last fall.
Although the currency has been steadily rising, Bank of Nova Scotia currency strategist Sacha Tihanyi questioned how long current foreign exchange trends will continue. The dollar may have “overshot,” he said.
