TORONTO, ONTARIO--(Marketwire - Aug. 17, 2012) - With the Canadian dollar increasingly supported by the country's safe-haven status, Canadian businesses can seize the benefits of robust capital inflows, according to a new report from BMO Economics.
"While commodity prices have certainly provided a firm underpinning for the loonie, there is little doubt that the currency is trading above fair value based solely on economic fundamentals, reflecting capital inflows drawn by Canada's relatively healthy standing," said Doug Porter, Deputy Chief Economist, BMO Capital Markets.
The report states that while the factors driving Canada's status as a safe haven are certainly welcome - including relative economic, banking, and political soundness - some by-products could work to undermine its status over the longer term, such as dampening activity in the manufacturing, resources, tourism and services sectors. "It is up to Canadians to turn these potential negatives into positives, by seizing the opportunities a strong currency provides, such as investing in productivity-enhancing equipment and cheapened foreign assets to build the economy's long-term growth potential," stated Mr. Porter.
Reflecting comments made by Finance Minister Jim Flaherty on Wednesday, the report states that, in real terms, Canadian businesses have ramped up outlays on machinery and equipment spending in the past three years, quickly reversing the recession losses, lifting spending close to an all-time high as a share of GDP. This spending has been supported in part by measures in federal budgets, such as the 50-per-cent straight-line accelerated capital cost allowance rate to investment in manufacturing or processing machinery and equipment.
"In the wake of the global credit crisis, Canadian businesses learned the dangers of too much reliance on a single customer, sector or market. In the same way that diversifying an investment portfolio can guard against market volatility, a company that diversifies its sales and supply chains, geographically, can leverage currency fluctuation to their advantage," said Cathy Pin, Vice President, BMO Commercial Banking. "For those businesses looking to upgrade their processes, technology, and equipment to boost their productivity, the high value of the Canadian dollar can provide them with additional purchasing power when importing this equipment and purchasing supplies and inventory from the global market. We encourage businesses to take advantage of BMO's Online Banking for Business platform that will assist them in making important foreign exchange transactions effectively," added Ms. Pin.
Online Banking for Business provides customers with a comprehensive view of their financial information, including payments products and banking services in an easy-to-use internet environment. Customers from small businesses to the very large capital market corporations are able to manage all aspects of their treasury needs from global cash management to foreign exchange services, to investments, loans, and trade finance all from a user-friendly customizable home page. For more information on BMO cash flow management tools and products please visit http://www.bmo.com/home/commercial or contact your BMO Bank of Montreal® representative.
About BMO Financial Group
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $525 billion as at April 30, 2012, and more than 46,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.