Who Wins (and Who Loses) When the Canadian Dollar Slides?

When the dollar drops, it has a different impact on parts of the economy. In short, some fare better than others when the Canadian dollar slides.

Importers, retailers, energy producers, and even consumers see an impact when the loonie flies a little lower.

Big picture: Loonie down … who benefits?

When the Canadian dollar slides, it makes goods and services in Canada cheaper in foreign currency. This means that exports, tourism, and companies that report out in U.S. dollars (but still pay the bills in Canadian dollars) will notice an improvement.

Conversely, anything that is imported to Canada, such as consumer products, machinery, tech and even food, suddenly becomes more expensive. This often doesn’t go well for retail stocks.

Investors see this as well.

Foreign stocks and exchange-traded funds get a boost. Similarly, U.S. dollar assets become more expensive. Companies that are dependent on imports feel the pressure, particularly if they can’t adjust prices (or cover the difference).

In short, it impacts all parts of the economy — some parts in different ways than others.

Here are three popular investments that will be impacted differently.

Suncor: Energy exports

Most Canadians are familiar with Suncor (TSX: CU) as the integrated energy behemoth and oil sands giant.

If the Canadian dollar slides, that would be in Suncor’s favour. The main reason is because of Suncor’s product, oil. That’s priced in U.S. dollars, while Suncor’s labour costs are in Canadian dollars.

To put it another way, when a U.S. dollar of revenue comes in and gets converted to Canadian dollars, it’s suddenly worth more (assuming nothing else changes).

That can help boost oil stocks like Suncor. In fact, Suncor has an advantage in this regard when compared to some of its peers. That’s because Suncor’s integrated operations that bring in greenbacks will be favoured during earnings season over solely domestic operators.

The market is already showing that appeal. As of the time of writing, Suncor is up 22%.

Dollarama: Pricing power

Another investment option that is impacted when the Canadian dollar slides is Dollarama (TSX: DOL). Dollarama is the largest dollar store operator in Canada.

The company also has a growing network of international stores under different brands in Latin America, and more recently, in Australia.

Most of Dollarama’s products are imported and purchased in U.S. dollars. This means that when the Canadian dollar slides, the price that Dollarama pays per item rises.

Fortunately, Dollarama’s business model is based on fixed-price points, and the retailer is well-known for bundling several items together.

In an environment where the Canadian dollar slides, this means that Dollarama could shift certain products to higher price points, or even bundle other items to give an increased value perception.

The other key point is that when the Canadian dollar slides and the impact is passed on to consumers, many of those shoppers will trade down to stores like Dollarama. This provides a boost to store traffic and, by extension, results.

Year to date, Dollarama is up over 40%.

Canadian Tire: The big squeeze

One final retailer impacted when the Canadian dollar slides to mention is Canadian Tire (TSX: CTC.A). Canadian Tire is known as Canada’s retailer with over a century of serving customers in every part of the country.

Canadian Tire sells a wide array of products from automotive parts, paints and hardware supplies to gardening supplies, sports equipment, and electronics.

And most of those are imported seasonal goods.

Higher import costs for goods purchased in U.S. dollars result in Canadian Tire needing to pass those increases down to consumers.

Fortunately, this is one area that Canadian Tire has strengthened in recent years with a shift to offering more local products. Those are less likely to see shifts due to any Canadian dollar slides.

Like Dollarama, this has a positive effect too. Prospective shoppers may skip the cross-border shopping trip and instead flow to domestic retailers such as Canadian Tire.

Year to date, Canadian Tire trades up nearly 10%.

When the Canadian Dollar slides, should you buy?

The message for investors is clear. No stock, even the most defensive, is without risk. That’s why the need to diversify has never been greater.

In my opinion, one or all of the above are great holdings for any larger, well-diversified portfolio.