DBRS Commentary: The Effect of a Rising Canadian Dollar for Credit Ratings
In a commentary published today, DBRS examines the possible effects of a strong Canadian dollar on the credit profiles of the Canadian companies it rates. In a sector-by-sector analysis, DBRS provides a picture of how each could be affected by a Canadian dollar that is on parity with or higher than the currency of its largest trading partner. Canada benefits from an abundance of natural resources, a fiscally responsible government, a strong banking system and a stable political environment, which is why there is good reason to believe that the Canadian dollar could reach parity and beyond.
“If the Canadian dollar reaches parity with the U.S. dollar,” says Peter Schroeder, Managing Director, “the direct impact on many corporate issuers in Canada will be negative since expenses remain in Canadian dollars while some meaningful portion of sales are largely based in U.S. dollars.”
For some industries, however, this direct negative is offset by other factors such as the reality that a high Canadian dollar may reflect high commodity prices, the benefits of purchasing equipment outside Canada with a stronger Canadian dollar and, in very general terms, the fact that a strong Canadian dollar will likely be in part a reflection of a relatively favourable base Canadian economy.
A copy of this commentary is available by contacting us at info@dbrs.com.