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Loonie may join elite clique: What it means for Canadians

Jennifer Kwan

The loonie got a boost this week on the prospect it may join the cool currency clique. The International Monetary Fund is considering adding the Canadian dollar and its commodity-linked cousin, the Australian dollar, to an elite group of global reserve currencies.

That clique currently consists of the U.S. dollar, the euro, the Japanese yen, the British sterling and Swiss franc.

In recent years, Canada been a popular pick thanks to its triple-A credit rating, relatively stable and resource-rich economy, viewed globally as a so-called safe haven as financial turbulence hit. An IMF nod just makes things official, says Douglas Porter, deputy chief economist at BMO Capital Markets.

"The Canadian dollar will remain strong. In a way it makes a trend that has been in place for almost five years, more or less, official," tells Yahoo! Canada Finance. The currency closed on Monday at C$0.9966 to the greenback, meaning one Canadian dollar buys US$1.0034.

Good news for Canadian consumers

So if the currency is expected to remain lofty what does this mean for Canadians?
Consumers have more buying power so it's especially good for Canadian shoppers and travellers. It also helps Canadian businesses that import raw materials and equipment because as the currency rises it pushes down the price of what we import in domestic dollar terms, says Porter.

A strong Canadian dollar should also keep interest rates low for longer, a benefit to prospective home buyers, and help keep inflation in check. "If the currency is strong and inflation is low that means the Bank of Canada will take even longer to raise interest rates so the consumers are a pretty clear winner from a strong currency," he says.

On the flip side, a strong domestic currency can be a slog for exporters as Canadian goods are seen as being relatively expensive in the global landscape. All this can eventually hit the labor market, which can inevitably trickle down to the consumer. If companies are having a tough time then they might not be hiring or they may even be laying off.

"If people actually start getting laid off we lose employment because of a strong currency," says Porter.