Ontario's finance minister claims the province is insulated against the effects of Canada's deteriorating foreign exchange rate and the recent hike in U.S. interest rates.

Charles Sousa told QP Briefing on Friday that the government has taken measures to mitigate the effects of higher borrowing costs in U.S greenbacks.

"We hedge our currency risk. The bonds are primarily denominated in Canadian," Sousa said.

In Ontario's 2015 fall economic update, the government noted that "87 per cent of this year’s borrowing to date has been completed in Canadian dollars." Most of the remainder, $2.4 billion, or 12 per cent of the debt issued in the 2015-16 fiscal year, has been completed in U.S dollar bonds. The fiscal review still noted that "the U.S. dollar market has remained an important source of funding for Ontario this year." The last dollop of foreign borrowing was $100 million in Australian dollar bonds.

Since the release of the fall outlook, the Canadian dollar has continued to lose ground, sinking below 72 US cents. The loonie has fallen about 17 per cent this year, which puts it on track to record its second-worst year ever. The U.S Federal Reserve also recently raised its target range for interest rates by 25 basis points, further pressuring the Canadian dollar.

QP Briefing asked Sousa if Ontario's exposure to U.S. debt markets would mean higher borrowing costs, which could skew the province's fiscal outlook for 2016.

"We've mitigated the risk relative to interest rates and exchange rates," Sousa replied. "Frankly, Ontario bonds are highly liquid, highly attractive. We trade very well and we've extended our maturities over a longer period of time with low interest rates."

Sousa said Ontario stands to gain as a result of the lower loonie, which should boost the provincial economy and the overall fiscal situation via greater exports.

"This is an added benefit but it's short term in my view," Sousa said. "We really want to maintain strong investments into the province, into those companies and innovation in order to be competitive in a global sense."

As he was heading into a meeting with finance ministers in Ottawa, Sousa said he's "sensitive to the commodities risk that exists now and that will be part of the discussion that we'll have on Monday. We're also going to be discussing how can we promote greater economic growth in all circumstances."

In its fiscal update, the province projected this year's deficit to be $7.5 billion (thanks, mostly, to the proceeds of the Hydro One initial public offering).

Sousa says Ontario will weather U.S. rate hikes, sinking loonie

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