The loonie: Who wins, who loses when it takes a beating

The loonie has its ups and downs, and with each major fluctuationcome challenges for some andopportunities for others.

The Canadian dollar hit its lowest level in three years this week, falling to 93.98 cents US on Mondaya long way from parity, where it was at the beginning of the year, andthe first time it has closed below 94 cents since June 2010.

The loonie has fallen almost seven per cent since the beginning of the year, and some analysts and traders predict that it will keep dropping, with Goldman Sachs expecting it totrade as low as the high 80-cent level next year.

Observers have attributed the recent decline to a combination of the strengthening of the U.S. economy, weaker-than-expected inflation at home and the Bank of Canada's decision to keep the interest rate at one per cent. The recovery in Europe has also played a part, as investors' need for a safehaven for their moneydiminishes.

While Canada is increasingly looking to diversify its trading partners, theeconomy is still highly dependent on doing business with the U.S., andwhether you are rooting for the dollar to rally or revelling in the loonie's recent decline largely depends on what side of thatbusiness relationship you're on.

Who loses when loonie slumps?

Canadian consumers andtravellers are some of thebiggest losers when the dollar is low because their money doesn't go as far in the U.S.

Conversely, when the loonie is strong, Canadians often use the opportunity to make cross-border shopping trips or travel outside the country.

• EU boasts of huge gains in Canadian trade deal
• Harper debates 'biggest' trade deal with Mulroney watching

If you're a frequent cross-border shopper, you might benefit from getting a U.S. dollar credit card that is tied to a U.S. dollar bank account. Thatwill save you the approximately 2.5 per cent that banks charge for foreign currency transactions when you use your Canadian credit card south of the border.

When the dollar is near or above parity, consumers increasingly expect to see that reflected in stores on their side of the border, too. In the past, when the dollar has been strong, such as when thelooniepeaked at a record $1.10 US in 2007, failure to adjust prices downward to more closely reflect their U.S. counterparts has sparked public anger.

"As the dollar reaches parity, retailers get a lot of it a lot of people out there pointing fingers, complaining about gouging," MarkBeazleyof the Retail Council of Canada told CBC News in an earlier analysis of the loonie's fluctuating fortunes .

A weak dollar lures U.S. consumersnorth, which isgood for certain sectors of the economy, such as tourism and real estate, which cansee an uptick in interest from international buyers.

Canada's professional sports teams can be hurt by a weak dollar because their ticket sales are in Canadian dollars, butexpenses such asplayer salaries and mandatory revenue sharing with the leagues they are part of are owed in U.S. dollars. A low dollarplayed a role in the loss of Quebec City's and Winnipeg's hockey teams in the mid-1990s. The Nordiques and the Jets both fled south of the border, although the Jets are now back in the NHL.

The Canadian film industry is one sector that benefits from a weak dollar because ithelps the industry lure Hollywood productions north.

Strong dollar hurts manufacturers

Companies that export goods to the U.S. or that have a lot of international salesbenefit from a weak dollar. One such example isthe Montreal-based dairy producer Saputo, with half of its revenue comingfrom overseas sales. Its Canadian sales are unaffected by the currency decline, but it gets more bang for its buck on the rest.

Conversely, astronglooniemakes it more expensive for Canadian manufacturers and exporters to sell their goods south of the border everything from lumber to auto parts. A risinglooniealso makes it cheaper for Canadians to import goods fromthe U.S. Industry can use the opportunity to purchase cheaper U.S. technology that can improve productivity.

• 'Buy American' less helpful than free trade, Fast says
• Canadian car buyers blocked from cheaper U.S. prices

When the dollar is high,American companies move in tosnag a greater share of Canadian markets, and Canadian companies facing increasing competition from the southstart paring down their operations in an effort to increase efficiency and lowercosts.

Investors, however, face acurrency risk when the loonie is strong. Even if a stock price nominally rises in U.S.dollar terms, Canadian owners of the stock can find their returns reduced or even eliminatedonce the market value isconverted to Canadian dollars. In that case, financial advisers sometimes recommend hedging investments through tools such as exchange-trade funds to offset theeffects of changing currencyvaluations.

As a whole, the manufacturing industry has been trying for years to diversify its customer baseto reduce reliance on the U.S. market.

Buy Americanprovisionshave sped up that process and caused Canadian firms to seek new markets. But when you're used to feeding the world's largest economy, it's a toughprocess to find new trading partners.Canada exports more than $330 billion worth of goods and services a year to the U.S. and imports slightly less than that, according to 2012 figures from Statistics Canada. The value of trade with the next biggest trading partner, the European Union, is a fractionof that, at $21 billion and $36 billion, respectively.

According to the Canadian Manufacturers and Exporters,a strong Canadian dollar is never good for business, butmassive fluctuationsare worse, which is why many companies have been exploring ways of minimizingthe impact ofcurrency movements, such as pricing products in the currencies of the countries where they do business or investing in financial instruments that hedge against exchange-rate fluctuations.

"It's not so much the value but the volatility," said JeffBrownlee, the association's vice-president of communications.