BMO Bank of Montreal

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BMO Financial Group

July 13, 2010 08:43 ET

BMO Survey: Canadian Businesses Not Worried About Impact of a Rising Yuan

- Majority of Canadian business owners expect no impact from higher Yuan

- BMO foreign exchange experts encourage business owners to be prepared for eventual rise

- Yuan expected to rise up to four per cent by end of year, according to BMO Economics

TORONTO, ONTARIO--(Marketwire - July 13, 2010) - A new BMO (TSX:BMO)(NYSE:BMO) survey shows the majority of Canada's mid-sized business owners are not worried about how they will be affected by the rising Chinese Yuan. The survey, conducted by Harris/Decima, found 86 per cent of Canadian businesses believe there would be no impact to their business if the Yuan reaches parity with the US dollar.

While the poll was conducted prior to China's recent decision to allow its currency to appreciate against the US dollar, there remains concern why so many Canadian businesses appear ambivalent toward the possibility of a rising Yuan.

"Despite this sentiment, our view is Canadian companies who import should consider the implications if the Yuan strengthens," said CJ Gavsie, Managing Director, Corporate & Institutional Foreign Exchange Sales, BMO Capital Markets. "No one can predict when or by how much the Yuan will appreciate. However, we have been telling our clients eventual changes will be slow and gradual. To protect against those movements it makes good business sense to determine now what hedging strategies businesses should have in place to manage their currency exposure."

BMO economists predict the Yuan is expected to rise gradually, up to four per cent by year's end. This should help Canadian firms regain market share in the U.S. and elsewhere, as exports drive up the U.S. and Canadian stock markets. Among the industries expected to see gains are foreign manufacturers of autos and heavy machinery, and consumer and technology firms.

What impact will the Yuan appreciation have on the US dollar, and ultimately the Canadian dollar?

"As the People's Bank of China allows the existing band to widen, Yuan appreciation will be slow and gradual. As the Yuan strengthens versus the US dollar, this will cause a global diversification of multi-asset investment portfolios and hedge re-balancing. This decline in the US dollar and continued strong demand for commodities by China could result in a prolonged appreciation for the Canadian dollar," said Mr. Gavsie.

Additional key findings from the survey include:

  • Businesses with annual revenues from $10 million to less than $31 million (10%) are more likely to feel they would see a negative impact than would companies with revenues between $31 million and less than $55 million (2%).
  • Businesses that are still expanding are less likely (one per cent) than established companies (nine per cent) to believe that parity with the US dollar could have a positive impact

BMO encourages business owners who want to better understand how a rising Yuan may impact their business, to contact a BMO Commercial Banker. Depending on your needs, BMO has a wealth of expertise in foreign exchange, economics and trade finance to help customers develop appropriate strategies to prepare for this change.

The Harris/Decima telephone poll was conducted from May 3rd to 19th, 2010 and is based on a sample of 427 Canadian businesses with between 50 and 499 employees and revenues between $5M and $75M annually. Results have been weighted against the known universe for such Canadian businesses. A sample size of 427 garners results that are accurate within ±4.7 percentage points, 19 times out of 20.

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