Loonie’s decline here to stay?

The Canadian dollar is trading at its lowest level in almost two years, a move that's considered good news for exporters and manufacturers in Canada but bad news for those relying on purchases from the United States.

In fact, the U.S. buyers could be cursing the loonie for the foreseeable future given economists' predictions that its value will continue dropping against the strengthening U.S. dollar.

The Canadian dollar closed down 0.28 of a cent at 94.80 cents (U.S.) on Tuesday, its lowest closing price since October 2011. Economists say Canada's currency is weakening alongside a stronger U.S. greenback, due to a steady economic recovery south of the border.

The dollar's drop is positive for Canadian manufacturers because it means products made Canada are cheaper for outsiders to buy, which helps to boost sales and in turn economic growth.

A recent Export Development Canada survey shows 80 per cent of Canadian exporters saw steady or increasing orders from their U.S. customers during the past six months, compared to 75 per cent last fall.

That's consistent with the lower loonie, which has fallen by more than 5 per cent since the start of the year. The Canadian dollar traded as high as $1.03 (U.S.) last fall.

"This is a strong and growing signal that the U.S. recovery is having an impact on Canadian export sales," the EDC said in a statement.

On the flip side, people and companies buying products in U.S. are earning and saving less because their money isn’t worth as much south of the border.

The lower dollar is also being blamed in part for a reduction in cross-border shopping in recent months, alongside factors such as higher gas prices and the introduction of Target stores in Canada, which is keeping hundreds of curious shoppers at home.

Most economists see the loonie continuing its slide in the coming months, with TD Bank recently forecasting it could drop to as much as 90 cents (U.S.) in 2014.

A recent Royal Bank report also predicts the Canadian dollar will continue to trade at weaker levels for the rest of the year, but expects a bounce back next year as a result of rising demand for cheaper Canadian goods.

“The prospect of a strengthening in U.S. demand for Canadian exports will likely see Canada’s currency regain ground in 2014,” said the bank report.

The softer Canadian dollar has also fuelled debate among economists on whether the new Bank of Canada governor Stephen Poloz should create some influence over the direction of the currency, or stick to the bank's main target: inflation.

While many say leave the loonie to market forces, United Steelworkers economist Erin Weir argued recently that the bank should do both, citing examples from both Japanese and Swiss central banks.

"No one would claim that they have allowed excessive inflation. Central bankers have proved capable of walking and chewing gum at the same time," Weir wrote in a recent opinion piece in the Globe and Mail, which he later circulated by email. "In certain circumstances, there would be trade-offs between the two. In current circumstances, efforts to lower the exchange rate would complement efforts to hit the inflation target."

It’s a debate that is expected to continue, alongside the fluctuations of the Canadian dollar.