I’ve come up with more trade data that expands on my earlier post and further helps to debunk the myth that a strong Canadian dollar has an impact on our export industry.

Click on image to enlarge.

Once again, as you can see there is simply no correlation between a rising dollar and a decline in exports to the US. While it might look as though the dollar’s rise in the late 80’s accounted for the drop in export growth seen in 1991, of more importance is the sudden decline in the US economy at the time. This effect can again be seen in 2001 as a sharp drop in export growth, that predates a rise in our currency, perfectly coincides with a significant downturn in the US economy.

While this doesn’t conclusively prove that no relationship exists between a strong Canadian dollar and the health of our export industry, it does show that if there is an effect it’s not nearly as significant as most Canadians have come to believe.

I’ll keep digging for more trade data that will enable me to show a longer period of time from which a definitive conclusion can be drawn. Specifically, data from the 70’s would do this since during most of that decade our dollar and the US dollar were at or near par. If export growth during that period of time was similar to the growth seen during the periods of time when the dollar was weak, it would prove that a strong dollar has negligible impact on our exports to the US.

Some Canadians have begun hand wringing over the recent rise in value of our dollar and are starting to complain that this will impact negatively on our exports to the US.

The powerful dollar is undermining the country’s healthy trade performance, torpedoing exports and buoying imports, according to a report that analysts say should make the Bank of Canada think twice before raising interest rates further.

But is there any truth to the commonly accepted wisdom that a strong Canadian dollar is bad for our export industry? The answer is most likely no. This graph plots the % change in exports to the US and the % change in our currency over a period from 1994-2003.

As you can see, there is no correlation between the two plotted lines. Canadian exports actually began dropping in 2001 with a decrease of 2.6% from the previous year’s increase of 16.6%, even though the US greenback finished the year at a record high of $1.5788 CDN.

While the data I’ve used is limited, the sample leaves no reason to believe that any other time period would show a correlation between the strength of the Canadian dollar and exports to the US. One more likely correlation this data does suggest however, is between the strength of the US economy, which began a downturn in 2001 and the level of exports.

Therefore it looks like the hand wringing over the strength of the loonie is simply based on a myth that for some reason or other has become accepted as common wisdom when it has no basis in fact.