Canadian dollar drops to 8-month low

[jdobbin]

Unless you want to see a foreign company buy CTV.. How about GLOBAL? National Post? G&M? Toronto tar? As a liberal ultra-nationalist, do you have ANY idea what you are advocating here? I agree with equal markets and low trade barriers but do you? I doubt it.

Why not let these companies be bought? They've been protected for too long by big business and government from competition.

[Wilber]

It's better to be able to sell your stuff for 20% less than not being able to sell it at all and being able to buy more Chinese made junk with your welfare cheque, no?

No, you make stuff that is better than anyone else so people will pay top dollar for it like the Japanese and Germans.

[Riverwind]

No, you make stuff that is better than anyone else so people will pay top dollar for it like the Japanese and Germans.

Wishful thinking. Many Canadian businesses have built a business model around a certain cost structure. You cannot expect businesses to change suddenly simply because the dollar decided to increase by 40% over two years. In the long term Canada is better off with a stronger currency, however, the sudden and unpredicatable changes create havoc in the short term. People who cheer the dollars rise should consider that. I would not complain about the same appreciation if it happened over 10 years instead of 2.

[Remiel]

I still don't understand why you seem to advocate the complete surrender of all of our market economic sovereignty to companies that are only larger by virtue of being based in a bigger country, jdobbin. I'd rather have news skewed towards a Canadian company line than an American company line. The difference in bias between the two is massive.

Imagine for a moment that a situation were to arise, and option A was better for Canada, and option B was better for the US, and if all of the media was US owned and they were all publishing stories spinnig option B to look better for us, when it was not?

[normanchateau]

However, you will see a lot of carnage in the BC forest sector in the next couple years as the price of wood drops faster than the dollar.

Unfortunately you're right. The carnage has already begun. The current slowdown in US housing construction is partially to blame for less American buying of Canadian lumber. But the exchange rate is another factor. The drop in sales of US lumber in the US isn't as great as the drop in sales of Canadian lumber which now costs the Americans more than it did when we had a 0.75 dollar.

The exchange rate also screwed the lumber companies out of hundreds of millions of dollars when the US returned the 4 billion US in illegal duties as required by the softwood lumber agreement. The 4 billion US was paid over a time period when the Canadian dollar was relatively low but was returned when the Canadian dollar was high. So we got back far less than what we paid in Canadian dollars. And the billion US or so that the US never returned was more like 1.35 billion CAD paid out.

[White Doors]

i think we shoudl encourage a higher dollar

How would you do that, pray tell? and at whose expense?

"Here dollar-dollar-dollar! Here dollar-dollar-dollar!"

Through interest rate policy for one but I can tell that you are not in the mood for a serious discussion. I think that there may be an off topic forum for toddlers. You can go there if you like.

[White Doors]

No, you make stuff that is better than anyone else so people will pay top dollar for it like the Japanese and Germans.

Wishful thinking. Many Canadian businesses have built a business model around a certain cost structure. You cannot expect businesses to change suddenly simply because the dollar decided to increase by 40% over two years. In the long term Canada is better off with a stronger currency, however, the sudden and unpredicatable changes create havoc in the short term. People who cheer the dollars rise should consider that. I would not complain about the same appreciation if it happened over 10 years instead of 2.

it is true that the pace of change wether higher or lower is the cause for concern, however it has been proven that a higher dollar is better for our economic health.

[White Doors]

i think we shoudl encourage a higher dollar

How would you do that, pray tell? and at whose expense?

"Here dollar-dollar-dollar! Here dollar-dollar-dollar!"

Excellent!

Why would we want to DIScourage our buyers by ENcouraging a high dollar?

As Riverwind said, when our dollar is low more people buy more of our stuff. This is a good thing.

Unless you want to see a foreign company buy CTV.. How about GLOBAL? National Post? G&M? Toronto Star? As a liberal ultra-nationalist, do you have ANY idea what you are advocating here? I agree with equal markets and low trade barriers but do you? I doubt it.

None of these companies are protected by federal foreign ownership rules. A cheaper dollar makes them much cheaper for a foreign company to purchase them however.

[Charles Anthony]

Through interest rate policy for one

Do you think it comes free-of-charge? Targetting for an exchange rate is favoring certain sectors of the economy at the expense of others.

It is not fair to suggest a target without recognizing that some sectors will suffer. Therefore, I ask: at whose expense will you "encourage a higher dollar" because not all sectors will benefit from it. Invariably, you are stealing from Peter to give to Paul with an exchange target.

but I can tell that you are not in the mood for a serious discussion. I think that there may be an off topic forum for toddlers. You can go there if you like.

Granted. My sarcasm is childish and unnecessary.

[Wilber]

If a 75 cent dollar is better than a 88 cent dollar then a 50 cent dollar must be better still. If not, when does a lower Canadian dollar become bad. The Canadian dollar has appreciated quickly against the US but not so much against other currencies. That hurts us because our biggest market is the US.

Our commodities are priced in US dollars. Our exports are valued in US dollars. If our dollar goes down we pay more for our own stuff. Not only because the market for those products is in US dollars but because the materials that went into them were priced in US dollars. We pay more for anything we import. We pay more for that salad on the dinner table that is made from California or Florida produce. If the Canadian dollar goes down against other currencies we pay more for that Japanese, German or Korean car, camera or electronics. Even North American branded vehicles or other products that are made outside of the US or Canada, not to mention all that stuff you buy that is made in China because the Yuan is pegged to the US dollar.

The fact is, as the value of the Canadian dollar goes down, so does the standard of living for anyone whose income is in Canadian dollars.

[Drea]

An extra large double double costs me $1.64 whether or not our dollar is at par or at 75 cents. Yes, it's more expensive for us to purchase foreign goods when our dollar is low.

The US can buy one log for $1 or one log for 75 cents (not real prices, just an example). Me thinks they would buy more logs at 75 cents each than at $1 each.

Hmmm I wonder why WalMart has LOW prices? I wonder why Super Store is always so busy? Why are those discount stores so full of shoppers? LOW PRICES. Sheesh.

We are a resource based economy like it or not.

I have goods to sell and want to sell them so IMO a low (not rock bottom though) dollar is good for us.

[Wilber]

An extra large double double costs me $1.64 whether or not our dollar is at par or at 75 cents. Yes, it's more expensive for us to purchase foreign goods when our dollar is low.

The US can buy one log for $1 or one log for 75 cents (not real prices, just an example). Me thinks they would buy more logs at 75 cents each than at $1 each.

Hmmm I wonder why WalMart has LOW prices? I wonder why Super Store is always so busy? Why are those discount stores so full of shoppers? LOW PRICES. Sheesh.

We are a resource based economy like it or not.

I have goods to sell and want to sell them so IMO a low (not rock bottom though) dollar is good for us.

I didn't know we grew coffee in Canada.

I don't much care what Americans have to pay for a log. I do care whether the money I make will allow me to buy a log.

Perhaps they are full of shoppers because that is the only place they can afford to shop.

Most Canadian companies that manufacture, use products made from commodities priced in US dollars, products, components and using machinery made outside the country. A lower Canadian dollar increases their cost of production in Canadian dollars. It may make their product cheaper for a foreigner but anyone buying it in Canadian dollars will pay more.

Our healthcare system uses large amounts of very expensive products and machinery most of which is made outside Canada and much of that in the US. A lower Canadian dollar increases the cost of providing healthcare and any other services that depend on foreign products. A lower Canadian dollar affects every part of our lives, not just our ability to export.

Riverwind makes a good point about a rapid rise in the Canadian dollar making it difficult for our producers to adapt in the short term but in the long term, a low dollar is not in the country's best interest. It lowers our standard of living and makes our companies less efficient and less competitive.

Either you are competitive or not and intentionally lowering the country's standard of living to facilitate an export industry is the start of a road to being a third world country, whose citizens spend their days making goods for foreigners that they will never be able to own themselves.

[Riverwind]

If a 75 cent dollar is better than a 88 cent dollar then a 50 cent dollar must be better still. If not, when does a lower Canadian dollar become bad. The Canadian dollar has appreciated quickly against the US but not so much against other currencies. That hurts us because our biggest market is the US.

Conversely, if a 90 cent dollar is good then 150 cent dollar must be better. A balance is important - what we want is an exhange rate where the internal purchasing power is the same as the external purchasing power - not higher or lower. The Economist has developed the 'Big Mac Index' which attempts to measure the ideal exchange rate for countries based on this principal of purchasing power parity (see http://en.wikipedia.org/wiki/Big_Mac_index). According to this study the Canadian dollar should be trading in the range of 85-95 cents. However, that is a long term goal. In the short term we need to dollar to drop back to 70 cent range to give companies more time to adjust.

[mikedavid00]

The fact is, as the value of the Canadian dollar goes down, so does the standard of living for anyone whose income is in Canadian dollars.

I agree.

It's like fixed rate mortgages vs. variable rate. Over the long term, variable rate is proven to be better. Of course, there are so many ways to cloud the issue.

Same with this issue. A lower value dollar is over all bad for Canadians quality of life. It's pretty simple and proven.

[Charles Anthony]

The Economist has developed the 'Big Mac Index' which

Ah.... burgernomics, is it?

The Big Mac theory is bizarre because it fails to take demand into account and it assumes that the costs of production are the same everywhere in the world.

For example, the price of a Big Mac in French francs is affected by the fact that the French do not like Big Macs or the wages of French workers.

[Riverwind]

The Big Mac theory is bizarre because it fails to take demand into account and it assumes that the costs of production are the same everywhere in the world.

The original article in the Economist acknowledges that the index is not perfect and that it does not take into account factors like demand. However, most economic indicators like 'productivity' and 'GDP' have similar limitations. That said, the theory does add some academic rigour into a discussion about what exchange rate is 'good' for Canada.

[Charles Anthony]

However, most economic indicators like 'productivity' and 'GDP' have similar limitations.

Granted.

Thus, I would say targeting the exchange rate is fidgeting with an economy a la Professor Marx.

That said, the theory does add something to a discussion about what exchange rate is 'good' for Canada.

Actually, it adds very little.

The theory lets us compare maybe Canada to the U.S.A. but no more.

[Riverwind]

Thus, I would say targeting the exchange rate is fidgeting with an economy a la Professor Marx.

Who said anything about intervention? This thread is split between people saying it would be great if the dollar went down to 50 cents and people who say it should go up to $1.50 or more. If anything, the Big Mac index suggests that the current trading levels are 'reasonable' and that the gov't should do nothing.

The theory lets us compare maybe Canada to the U.S.A. but no more.

The theory itself is valid no matter what currency is used as a the reference point. It is based on the premise that a loaf a bread requires the same economic inputs (materials, energy and labour) no matter where it is sold and that in the long term price differentials will create incentives for trade that reduce the price differentials in the long run. In the short and medium term many things can happen that can cause the currency to deviate from its 'PPP' value.

[Wilber]

Conversely, if a 90 cent dollar is good then 150 cent dollar must be better. A balance is important - what we want is an exhange rate where the internal purchasing power is the same as the external purchasing power - not higher or lower.

I agree but the bottom line is the value of your currency signifies what you are worth to the rest of the world, the lower the value the less you are worth.

[Charles Anthony]

Who said anything about intervention? This thread is split between people saying it would be great if the dollar went down to 50 cents and people who say it should go up to $1.50 or more.

No. Some people in this thread are suggesting targeting the exchange.

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The theory itself is valid no matter what currency is used as a the reference point. It is based on the premise that a loaf a bread requires the same economic inputs (materials, energy and labour) no matter where it is sold and that in the long term price differentials will create incentives for trade that reduce the price differentials in the long run. In the short and medium term many things can happen that can cause the currency to deviate from its 'PPP' value.

The theory also depends on zero transport costs -- which is its biggest failure.

[Saturn]

I think that the Canadian dollar is trading near its actual value (more likely slightly above) but the Canadian $ was undervalued for over a decade. Unfortunately, that's what Canadian business is used to and they have trouble adjusting in such a short period of time. On top of that the Canadian dollar is tied to oil and its price, which varies quite a lot. Which is fine for oil but a currency needs more stability than that. Of course the Bank won't move a finger until something extraordinary happens, so we are just stuck with what we got.