The confluence of rapid increases in interest rates in Canada and the corresponding decline in the value of the Canadian dollar is fueling some British Columbia businesses, particularly those that export to the United States and have Canadian employees.

While the Bank of Canada (BOC) and the United States Federal Reserve (US Fed) are cutting interest rates, the BOC has been cutting interest rates more quickly, lowering the country’s key interest rate in 2017. four successive reductions to 3.75 percentcompared to five percent in May.

The U.S. Fed sets the target federal funds rate in ranges, as opposed to exact rates. Its rate is now in the range of 4.75 to 5 percent, down from May, when it was between 5.25 and 5.5 percent.

Investors therefore obtain significantly higher returns on investments in US Treasury bills than on Canadian interest-bearing products.

This directs investment towards the United States, thereby stimulating demand for American dollars rather than Canadian dollars.

The loonie’s fall began a few weeks ago, after reaching a six-month high on September 24partly because the buzz in Canadian financial circles was that the BOC would make an outsized cut this month.

Investment industry observers were not surprised when the BOC on October 23 cut its key interest rate by 50 basis points – the biggest such cut since March 2020, when the world was adapting to the COVID-19 pandemic.

Foreign currency market participants were also anticipating this decline, as well as future declines, which is likely why the Canadian dollar has fallen for the past four consecutive weeks – the longest such streak since January.

On Friday, the loonie was near a 12-week low against the US dollar, down 0.43 percent for the week to US$72.18.

It then continued its decline over the weekend to reach US$71.94 on Sunday evening Vancouver time. This is the lowest level since August 5, when it touched $71.73, but it was only below the current level for a single day. Before that, the last time the dollar fell was on October 13, 2022, when it reached 71.58 US dollars. according to Yahoo! Financial data.

Which companies are taking advantage of the weak loonie and low interest rates

The companies that benefit from this situation are those that have expenses in Canadian dollars and revenues in American dollars.

Lululemon Athletica Inc. (Nasdaq: LULU) could benefit. The yoga clothing manufacturer is so large that various currency fluctuations always impact its profits.

The clothing company’s store revenues and costs will always be expressed in each store’s local currency.

However, head office expenses for its numerous offices in Vancouver are always in Canadian dollars.

Conversely, U.S. owners of income-generating Canadian assets lose out when the Canadian dollar falls.

Kirsten Lynch, CEO of Vail Resorts Inc. (NYSE:MTN), owner of Colorado-based Whistler Blackcomb, for example, told investors during a September earnings conference call that her company’s accounting estimates a rate exchange rate of the Canadian dollar at $0.74.

According to this assumption, the price of ski passes was increased this year by around eight percent. If the Canadian dollar stays closer to US$0.72, the company will receive less money than expected when revenues are converted to US dollars.

Businesses also benefit from rate cuts because it becomes less expensive for them to borrow money to buy new equipment. They also benefit because some customers will feel richer.

Some consumers who have loans will have to pay less interest if the interest rate on their loan changes.

They will therefore have more money to spend in stores.

“The BOC expects consumer spending and business investment to increase as interest rates fall,” said Central 1 chief economist Bryan Yu.

“Slowing population growth will cause a drag, but per capita consumption is expected to increase. »

Storkcraft CEO Adam Segal said BIV that he likes lower interest rates because it can encourage potential buyers to shop.

“A strong real estate market is generally a good thing for furniture makers,” said Segal, whose company specializes in cribs and children’s furniture, such as dressers and chairs.

New homeowners often purchase new furniture to fit their new home.

The biggest economic policy decision that could impact Segal’s business, however, is one that will likely come if Donald Trump wins his bid for U.S. presidency, he said.

Trump has said it would impose tariffs of at least 10 percent on all imports, and possibly tariffs of 60 percent on goods imported from China to the United States..

“Tariffs are something that’s on everyone’s mind right now,” Segal said.

His company manufactures many products in China.

“The United States. does not have the infrastructure to produce products at the prices and volumes we need, but we are starting production in the United States for one or two categories soon.

Wamame, Blair Bullus’ plant-based food manufacturing company, manufactures products for sale in Canada and the United States.

“We hope to be able to start production of a new product line because the supplier is upgrading its equipment and investing in the manufacturing line,” he said.

Bullus added that if interest rates were to remain as high as they were in May, the company with which he contracted to manufacture certain products would not have invested in the new equipment needed to manufacture some of its new products.

“We have a slightly high-end product line,” he said. “Any time someone has more money to spend, it’s good for high-end products. »

Restaurant owners are also relieved that the Bank of Canada quickly reduced interest rates.

“It’s going to take a while for the cuts to trickle down to the economy, but let’s face it: Any drop in interest rates will put a few extra dollars in the consumer’s pocket for that extra coffee or glass of wine,” Kelly said Gordon, owner of Romer. BIV.

Some say consumers are unlikely to be willing to spend more money right away.

“It will be another five or six months before people really feel the effects,” said Andrew Jameson, who plans to close his NGO Say Mercy! restaurant at 4298 Fraser Street on November 2.

He plans to devote his time to his two other restaurants: Mackenzie Room at 415 Powell Street and Collective Goods at 3532 Commercial Street.

The BOC’s interest rate cuts are “a step in a direction that will hopefully allow consumers to have a little more free cash flow to enjoy things like restaurant meals and having a little extra money for things that are considered luxury experiences,” he said.

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