How the Weak Dollar Impacts Canada’s Tech Industry

VIQ Solutions CEO Sebastien Pare discusses the impact of the fluctuating Canadian dollar.

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Over the last six months, the Canadian dollar has taken a hit, particularly in comparison to its US counterpart. The Investing News Network sat down with Sebastien Pare, CEO of Toronto-based VIQ Solutions (TSXV:VQS), to find out how that disparity is impacting the nation’s tech scene.

To start off, it’s important to understand exactly where the Canadian dollar stands. Notably, its valuation hit a low on January 17, 2016, when one Canadian dollar was worth US$0.68587. That gap in value was felt acutely by Canadians, whose cross-border tourism and spending took a hit. Since that low, the Canadian dollar has recovered quite a bit — at time of writing, it was valued at US$0.75667. 

But despite that recovery (due in part to higher oil prices), there are still concerns about the status of the Canadian dollar. First of all, despite its notable increase in value, the loonie’s value is about 5 percent less than its value this time last year. In January, the loonie’s value was a good 18 percent below what it was at the same time the previous year. 

Compounding this problem, some experts fear that the loonie’s relatively strong position won’t last. According to The Globe and Mail, foreign exchange strategists at Bank of America Merrill Lynch see the recent surge in the loonie as overdone. Taken together, these factors have got many Canadians thinking about the worth of the dollar, from both consumer and business perspectives.

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Potential benefits for Canadian tech

While the majority of Canadian consumers would like to see a stronger loonie, for businesses in the tech world, the Canadian dollar’s relatively weak valuation can be seen as a boon. VIQ Solutions is a leader in the digital audio, video and evidence capture and management market, and Pare has already seen the benefits of the weak Canadian dollar. The fact that the bulk of VIQ’s R&D and management expenses are in Canadian dollars has given the company a little extra leeway when it comes to innovating.

In conversation with the Investing News Network, Pare explained that the bulk of the company’s overhead dollars are in Canadian dollars; meanwhile, “90 percent of the company’s revenue is in US dollars.” The difference in the two currencies has made a big difference to VIQ’s direct bottom line and, from a revenue standpoint, helped the company have a record-breaking Q4 2015.

As Pare explained, that difference in currencies “allows [VIQ] to be very competitive and push the envelope, while protecting the margins. It gives us an extra cushion to work with,” particularly when it comes to early adoption in a competitive landscape.

Pare is not alone in seeing the benefits of a weak Canadian dollar. The potential to be gained from the disparity between the US and Canadian currencies was also a hot topic at this year’s Cantech Investment Conference. All in all, there are obvious downsides to a weak Canadian dollar. However, for the country’s tech community, it can be seen as a very good thing, driving innovation, revenue and homegrown talent.

Don’t forget to follow us @INN_Technology for real-time news updates.

 

This article was originally published on Technology Investing News on March 13, 2016.

Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.

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