Canadian dollar likely to trump US greenback

[Smallc]

Yes, it does matter. Investment goes to where things are stable in relation to other places.

[Machjo]

Yes, it does matter. Investment goes to where things are stable in relation to other places.

It matters, but only indirectly. If the US dollar drops in relation to the Canadian dollar, that's not a reason for Canada to worry. Now, if we're experiencing out of control price fluctuations within our borders, that's something to worry about.

[Smallc]

It matters, but only indirectly. If the US dollar drops in relation to the Canadian dollar, that's not a reason for Canada to worry.

Oh but it is. The US is our largest export market, and as such, we need them to be able to buy what we make (we also need to continue to diversify). The high dollar is both good and bad for the two of the four major provinces, Alberta and Ontario. We'll see how it goes if the dollar goes to $1.10 or higher as predicted.

Edited March 14, 2010 by Smallc

[Machjo]

Oh but it is. The US is our largest export market, and as such, we need them to be able to buy what we make (we also need to continue to diversify). The high dollar is both good and bad for the two of the four major provinces, Alberta and Ontario. We'll see how it goes if the dollar goes to $1.10 or higher as predicted.

OK, that I agree with, in the sense that a drop in the US dollar will likely result in a drop in Canadian exports to the US and an increase in Canadian imports from the US. In the short term, this could cause deflation. If that happens, then and only then might we want to counter-deflate the currency by printing more money if necessary. But that must be a last resort after all other options have failed.

Until this happens, we should wait out the storm. If we're lucky, we won't need to resort to such drastic measures.

[Machjo]

So essentially, that is what I meant when I said it would affect us indirectly. the drop in the US dollar is not in itself a problem we need to react to. But if it should cause out of control deflation here in Canada, then and only then should we react, but then we wouldn't be reacting to the drop in the US dollar in relation to the Loonie, but rather to the drop in prices in the Canadian economy itself. It may be that the drop in the US dollar would be the cause of it, but we should not react to that until the deflation sets in for sure. Again, if we wait it out, we might be lucky and not face such deflation.

[Smallc]

I don't see deflation happening.

[Machjo]

I don't see deflation happening.

If Canadian companies suddenly cannot sell their products abroad, and Canadians aren't interested in buying Canadian products, then companies have no choice but to lower costs to compete. This means narrower profit margins, pushing salaries down. Deflation by definition.

Now of course if we're lucky this might not happen. Let's say that Canadians increase imports from the US quickly this trade imbalance could cause the Canadian dollar to restabilize quickly too, pushing the Greenback up again against the Canadian dollar, and we're back in business. It would really depend on how quickly the market adjust, and so again it's not the currency fluctuations that matter so much as the price fluctuations at home if they occur.

[msj]

If Canadian companies suddenly cannot sell their products abroad, and Canadians aren't interested in buying Canadian products, then companies have no choice but to lower costs to compete. This means narrower profit margins, pushing salaries down. Deflation by definition.

No, salaries falling and profit margins falling are a symptom of deflation.

Deflation is a net decrease in money supply and credit (and one has to consider velocity of money as an integral part of money supply).

[Shady]

Personallhy, I don't consider the value of the Canadian dollar in relation to that of any other currency to be particularly important.

Then you really don't know much about economics. To deem the value of any country's dollar as not important is fairly ignorant.

Anyways, looks like economists predict a strong Canadian dollar for several years.

OTTAWA - The Canadian loonie is again flying near parity with the U.S. greenback - but this time no one is surprised and most expect the currency to remain aloft for years.

Before, whenever there was a crisis anywhere in the world, the Canadian dollar rushed to the front in terms of getting beaten up. But now you get more talk of Canada as a safe haven."

...

"What we're seeing is that Canadian manufacturers and other exporters are learning to live with the higher dollar," he told reporters.

"And they are increasing their labour factor productivity, which is all good news."

Statistics Canada reported Tuesday that productivity - the Achilles heel of the Canadian economy - jumped a surprising 1.4 per cent in the last three months of 2009, the biggest increase in a dozen years

Adding to the recovery trend, the agency said Wednesday that wholesale sales had their strongest advance in three years in January, gaining three per cent to $44.4 billion.

The Canadian economy is not all the way back from the recession, but its initial spurt is stronger than expected. The five per cent gross domestic product increase in the fourth quarter of 2009 appears to gathering momentum in the first three months of 2010.

Link

[Machjo]

Then you really don't know much about economics. To deem the value of any country's dollar as not important is fairly ignorant.

You have to make a distinction here. Let's say country A starts printing money like crazy. Obviously, country B's currency will appreciate drastically in relation to that of country A, but it might not budge much in relation to goods and services within the country's borders.

I'm not saying that country A's actions won't affect country B. What I'm saying rather is that that is something beyond country B's control and so country B should not worry about it. In that respect, it's a non-issue since there's not much country B can do about it anyway.

Now we could argue that country B could go on a printing spree of its own and that could be one way of keeping currency parity, not not parity with goods and services. In the end, currency parity should not be the country's goal. The country's goal ought to be parity with goods and services within its own borders (i.e. stable currency, low to no inflation). By maintaining the stability of the currency within the country's borders, it maintains international trust in the currency. What that does to our currency's parity with other currencies is beyond our control and we should not worry about it because by worrying about it we risk losing our focus on currency stability, thus making things worse.

[Dave_ON]

New provinces (The west) will make up our economy don't worry about it.

Perhaps in about 150 years when they have the population to support it... but until then what to do...