Who wins from rising Loonie?
Before you consider what to buy based on a strengthening loonie, you must be confident in a return to higher oil prices. With over 25% of the economy directly tied to the energy sector—and a much higher percentage being indirectly affected—oil prices will continue to be the driving force behind Canada’s currency fluctuations.
With that said, what can you expect from oil moving forward? Fortunately, there are plenty of signals indicating that higher prices are around the corner.
Grocery store operators such as Loblaw Companies Limited, Empire Company Limited, and Metro, Inc. have faced mounting headwinds as the Canadian currency weakened.
Because Canada imports about 80% of its fresh fruits and vegetables, currency fluctuations have a major impact on grocery bills. When the loonie falls, prices for those goods soar. Last year, consumers faced big cost increases for certain items like fresh vegetables (up 13.3%) and fresh fruit (up 13.2%). For example, lettuce prices shot up 22%, apples rose almost 12%, and oranges were up about 9%.
According to the Winnipeg Free Press, a new survey by the Angus Reid Institute found “nearly six in 10 Canadians (57%) say it’s become more difficult in the past year to feed their families.” About 70% also said they were switching to cheaper brands to stretch their grocery budgets. That could result in consumers limiting their spending at major grocery store chains.
Rising oil prices should continue propping up the Canadian dollar. Because Canada imports so much of its produce, a strengthening currency should help lower food costs. A recently strengthening loonie is already providing some relief.
Source: fool.ca
