Sometimes silence speaks volumes.
Throughout the Canadian dollar's roller-coaster ride over the past couple of years, perhaps the biggest surprise was the relatively muted reaction from the manufacturing lobby.
There have been scattered cries for intervention in foreign-exchange markets by the Bank of Canada, but these were the exception. At times, Governor Mark Carney appeared more concerned by the currency's ascent than the factory owners themselves.
The lack of political pressure suggested that something in Canada's economy had changed: exporters had moved beyond worrying about the exchange rate. There's now empirical evidence that suggests this is the case.
The Ottawa-based Conference Board of Canada today publishes a 27-page study that has the potential to alter the way economists and policy makers think about the effect of foreign-exchange volatility on the country's economy.
Researchers at the Conference Board created an index that measured the exposure of 27 industries to the international economy through exports, overall imports, imports of machinery and equipment and investment. The point was to determine how well industries are hedged against changes in the exchange rate.
The surprise, according to authors Louis Thériault and Valérie Poulin, was the manufacturing industry was "largely able to shrug off the impact of currency volatility prior to the recession."
Of the 27 industries observed, Mr. Thériault and Ms. Poulin determined that six had "high" exposure to currency volatility. Of those, only one was a subset of the manufacturing sector (electrical equipment makers). Fourteen other manufacturing industries have either "moderate" or "low" exposure to the gyrations of foreign-exchange markets.
The Conference Board's findings suggest Canada's factories are moving beyond making stuff at home and shipping it to the United States or elsewhere. Instead, they are setting up plants in other countries and sourcing more of their products abroad. These networks become a built-in hedge to changes in the value of the Canadian dollar.
According to the study, it is actually services industries that struggle most with currency volatility. Transportation and warehousing, utilities, retail trade, wholesale trade, and information and cultural industries all scored "high" on the index. That's because their exposure to international markets tends to be through imports or exports, not both - so no hedge.
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Decent exposure
Overall exposure of Canadian industries to the exchange rate:
HIGH
Transportation and warehousing
Utilities
MODERATE
Wood product manufacturing
Chemical manufacturing
Finance and insurance
Transport
Equipment manufacturing
Fabricated metal manufacturing
LOW
Mining and oil and gas extraction
Primary metal manufacturing
Source: Conference Board of Canada