Canadian Dollar at Parity with the US Dollar

August1991 · September 19, 2007

With the recent drop of the US Fed Discount Rate by 1/2 a percentage point, and the likelihood that the Bank of Canada will not reduce its key lending rate, the Cdn dollar will in all likelihood go above the US dollar soon.

The fall of the US dollar can be seen against the euro, the yen, gold and oil. In relative terms though, the Cdn dollar has risen more, in part because of the (also relative) rise of natural resource prices such as oil. I think oil is now above US 80 per barrel.

It's noteworthy that the last time that the Cdn dollar was at parity with the US dollar was in November 1976, the same month that the PQ was first elected in Quebec.

In my mind, the two events are partly but not wholly connected. The rise and fall of the Cdn dollar mirrors in part the rise and fall of perceptions of Canadian unity.

OTOH, it is entirely false to see in the value of the Cdn dollar a measure of the Canadian economy. The Cdn dollar is not like a share price in a corporation. For example, it doesn't reflect the market's best estimate of the discounted value of a future income flow. The exchange rate is just an excahnge rate. Canadians should want that it be neither high nor low - just accurate.

Nevertheless, if (or rather when) the Cdn dollar goes above parity, it is certain that many, many Canadians will consider that as an indicator that Canada is doing well. It is certain that news reports will refer to November 1976.

I think Harper and the Conservatives are going to reap credit for this. In a sense, it will be deserved. Harper, like Mulroney, represents a non-confrontational approach to Canadian unity questions - particularly where Quebec is concerned. If there is a political effect beneath the rise of the dollar, it is the fall in the risk of separation.

Edited September 19, 2007 by August1991

jdobbin · September 19, 2007

I think Harper and the Conservatives are going to reap credit for this. In a sense, it will be deserved. Harper, like Mulroney, represents a non-confrontational approach to Canadian unity questions - particularly where Quebec is concerned. If there is a political effect beneath the rise of the dollar, it is the fall in the risk of separation.

Some think the dollar might reach parity by the end of the week.

I don't know that the high dollar is something that a political party would want to take credit for when it could equal some pain for manufacturers.

ScottSA · September 19, 2007

Some think the dollar might reach parity by the end of the week.
I don't know that the high dollar is something that a political party would want to take credit for when it could equal some pain for manufacturers.

Lol...there's a cloud for every Tory silver lining eh?

But actually, that's true...announcers always announce a relative rise in the Cnd dollar with a bright smile on their face, little realizing that the dark side often outweighs the bright side. Especially if you're me, since I live in canada and get paid in American dollars...grrrr. Oh well, I guess I'll just keep it in USD until the Libs make it back into power and we go to 62 cents again...

September 19, 2007

Some think the dollar might reach parity by the end of the week.

1.00 USD=1.00951 CAD

Wouldn't that be considered at par since it would be dollar per dollar?

I suppose this will affect American tourism to Canada to some extent.

Edited September 19, 2007 by American Woman

jdobbin · September 19, 2007

Lol...there's a cloud for every Tory silver lining eh?
But actually, that's true...announcers always announce a relative rise in the Cnd dollar with a bright smile on their face, little realizing that the dark side often outweighs the bright side. Especially if you're me, since I live in canada and get paid in American dollars...grrrr. Oh well, I guess I'll just keep it in USD until the Libs make it back into power and we go to 62 cents again...

The Canadian dollar has been rising steadily for some time as years of balanced budgets, rising commodity prices and better overall performance against out counterparts has been taken into account by investors.

A 62 cent dollar was part of the pain of trying to fight the deficit that previous Liberal and Conservative governments let balloon.

As you said, a lot of Canadians get paid in U.S. dollars, have investments in the U.S. or report in U.S. dollars. They are certainly hurt by a rapid rise. And the low dollar advantage that helped manufacturers will now cause some pain for those companies. Some perhaps will rise to the occasion with greater productivity. However, as most economists have noted, it is hard to make an adjustment with so quick a change.

I don't know that the high dollar will be something that any party would want to take full credit for if it is causing employment pain in vote rich Ontario.

As for keeping your money in U.S. dollars until the Liberals return, I'm surprised you think it will be that quick that they are back in office.

jdobbin · September 19, 2007

1.00 USD=1.00951 CAD
Wouldn't that be considered at par since it would be dollar per dollar?

I suppose this will affect American tourism to Canada to some extent.

American tourism has been affected for some time now as the dollar has risen over the last few years.

It isn't quite at par yet. The dollar is floating between 98 and 99 cents to the U.S. dollar.

kimmy · September 19, 2007

Great news if you travel to the US or buy American things. Not such good news if your job depends on exports or tourism.

The question of how much of this is a reflection on Canada and how much is a reflection on the United States is somewhat debatable. I heard on the news tonight that although the US dollar has fallen with respect to every major currency, the Canadian dollar has also risen relative to currencies other than the US dollar.

I wonder when some of our dollar's newfound muscle will start to be reflected in prices? Strange that considering how much our dollar's buying power has supposedly improved, prices at the supermarkets don't seem to have gone down any...

-k

White Doors · September 19, 2007

Great news if you travel to the US or buy American things. Not such good news if your job depends on exports or tourism.
The question of how much of this is a reflection on Canada and how much is a reflection on the United States is somewhat debatable. I heard on the news tonight that although the US dollar has fallen with respect to every major currency, the Canadian dollar has also risen relative to currencies other than the US dollar.

I wonder when some of our dollar's newfound muscle will start to be reflected in prices? Strange that considering how much our dollar's buying power has supposedly improved, prices at the supermarkets don't seem to have gone down any...

-k

Yep, not to mention automobiles. Our cars and trucks are priced WAY too high compared to the US.

Wilber · September 19, 2007

The price of diesel here has dropped 4 cents a liter in the past 4 months even though oil prices have been rising. It's still cheaper in much of the US due mostly to taxes. The strength of the CAD and the fact oil is priced in USD must be part of the reason.

Although the CAD has been strong the biggest reason for the USD's decline is its dilution in order to finance their mega deficits over the last six years.

old_bold&cold · September 19, 2007

The rise in the value of the Canadian dollar will spell some grief for manufacturers that rely on exporting their goods. The only way they can relieve this, is to take the dollars new power of buying and update their equipment to more labour saving types. Yes that means robotics, etc., and it also will mean many people losing jobs. The only way to compete with the strong dollar and the world economy, will be to cut costs, and labour is one of the most expensive costs there are. It will mean a high dollar investment, but in the end it will also mean survival of the company, and its ability to compete.

The good paying low educational demanding jobs that we have had for so long are going away, ont way or that other. People will have to make an investment in education to continue being productive in the times that are coming. Even to companies who moved operations to third world countries will see that even there the costs will only rise and robotics will have to be what they all will have to go just to be competitive. Canada is ripe for this kind of thing and we do have many educated people who can design and build such equipment and service it. The time of man's use in much of the repetative production jobs is coming to an end. It had to happen, and now with the strong dollar, it is cheaper for companies to do this kind of investment, and the government has already in place programs to help with the write off of all of this.

They are saying now that the CDN will be worth $1.06 USD by the spring of this year. While I do think that it is possible, I am not sure of the time table.

M.Dancer · September 19, 2007

I have a stack of US pesos...about a 1000 mainly in ones and fives...are they good for anything other than buying tins of refried green tomatoes? Can I use them as napkins?

I also have a jar of US peso coins.....do vending machines take them?

Edited September 19, 2007 by M.Dancer

mikedavid00 · September 19, 2007

In my mind, the two events are partly but not wholly connected. The rise and fall of the Cdn dollar mirrors in part the rise and fall of perceptions of Canadian unity.

Errrr.....

Ok can you explain this further?

mikedavid00 · September 19, 2007

Yep, not to mention automobiles. Our cars and trucks are priced WAY too high compared to the US.

This is a serious problem due to the culture of Canadians.

We are a self hating bunch so we have to make sure we screw one another real hard.

I find I still have to order stuff off ebay. There are rare exceptions and some products, but for the most part we still have to send our dollars outside of Canada which is very detremental to our economy.

I'm redoing my kitchen and will be forced to buy my cabinets across the border becuase the will power to compete just isn't there.

Edit: Most people here are of this cultural trait of Canadians (the self hating part) so have no idea what means to jump at the chance to lower prices or intellectually cannot understand why a shop owner would jump at the chance to lower prices. If I ever own a business, I will try my best to keep prices as low as possible. If I get the products for cheaper, the prices will go down as low as I can get them. This doesn't just benefit me, this benefits my customers and ultimately my country. But this logic is like the healthcare argument, it's far, far too against a cultural mindset for most to understand the benefits. Ya'll just keep self hating Canada and maybe someday we'll be winners... eh?

Edited September 19, 2007 by mikedavid00

guyser · September 19, 2007

Yep, not to mention automobiles. Our cars and trucks are priced WAY too high compared to the US.

In a report online yesterday, a consumer group investigated and found 2/3rd'd of all vehicles are within $1000 of the US price. Mainly the smaller cars were bang on, the big diff were the luxury cars.

guyser · September 19, 2007

I have a stack of US pesos...about a 1000 mainly in ones and fives...are they good for anything other than buying tins of refried green tomatoes? Can I use them as napkins?
I also have a jar of US peso coins.....do vending machines take them?

Well, singles are always welcome although I suppose the fivers will be welcome at the places that college girls go to earn extra "tuition" money .

Of course the scenery is less obvious, but you will have a good time.

guyser · September 19, 2007

I'm redoing my kitchen and will be forced to buy my cabinets across the border becuase the will power to compete just isn't there.

You should learn how to shop. Cabinets can easily be found in Canada for less than you can ship it to TO and have installed. And then of course, what about warranty since it does not cross borders?

Edit: Most people here are of this cultural trait of Canadians (the self hating part) so have no idea what means to jump at the chance to lower prices or intellectually cannot understand why a shop owner would jump at the chance to lower prices. If I ever own a business, I will try my best to keep prices as low as possible. If I get the products for cheaper, the prices will go down as low as I can get them. This doesn't just benefit me, this benefits my customers and ultimately my country. But this logic is like the healthcare argument, it's far, far too against a cultural mindset for most to understand the benefits. Ya'll just keep self hating Canada and maybe someday we'll be winners... eh?

The only one who truly hates Canada is you. It has become obvious your disdain for this country. You wont vote because you are too lazy , you buy out of the country, you seethe when talking about anyone not white or christian.....need I go on?

Maybe, just maybe, you should take your own advice. Move?

mikedavid00 · September 19, 2007

In a report online yesterday, a consumer group investigated and found 2/3rd'd of all vehicles are within $1000 of the US price. Mainly the smaller cars were bang on, the big diff were the luxury cars.

What about Ikea?

Go to Ikea.com

And then Ikea.ca

Let me do it for you:

http://www.ikea.com/us/en/catalog/products/S39841326 - $399

http://www.ikea.com/ca/en/catalog/products/S39841326 - $599

All I did was pick a random sofa. And there you have it folks, 50% difference in price. This is inexcusable. 15% is the MAX acceptable due ot our taxes and just being 'Canada' overhead. But 50% is just silly.

jdobbin · September 19, 2007

In response to whether Canadian prices are about to come down:

http://ca.news.yahoo.com/s/capress/070919/...onsumers_loonie

The Canadian dollar could reach parity with the American buck any day now, following a huge leap Tuesday after the U.S. Federal Reserve surprised investors by cutting its key interest rate by half a percentage point.
Early Wednesday afternoon, the currency traded at 98.51 cents US after nudging 99 cents overnight.

Lower U.S. interest rates and a new record price for oil of more than US$82 per barrel sent the loonie rocketing upwards - taking hopes of cheaper U.S. imports along with it.

But even though the loonie closed at its highest level since January 1977 after the Fed announcement, economists say it could be up to two years before consumers see any effect at Canadian stores - if the loonie remains at current levels.

"Consumers don't really lose out so much when the Canadian dollar is really dropping and, conversely, they unfortunately don't benefit as much when the currency is doing much better," said Scotia Capital economist Meny Grauman.

"When the Canadian dollar was even around 65 to 70 cents US, prices didn't adjust because of that sharp depreciation of the Canadian dollar. Now we're seeing the other side of that."

Doug Porter, deputy chief economist with BMO Capital Markets, said it's unrealistic for consumers to expect prices to drop along with the exchange rate, noting that retailers have fixed costs in Canadian dollars that are unaffected by currency fluctuations.

Labour and rental costs, property taxes and utility payments must all be factored into prices, as well as printing and packaging costs, if catalogue prices were changed. Packaging changes may also be particularly expensive in Canada because of certain language laws that require printing in English and in French.

So looks like if Canadians want bargains, they will have to travel south.

jdobbin · September 19, 2007

And for some Conservatives who still insist that family pricing makes for good shopping deals for autos in Canada:

http://www.ctv.ca/servlet/ArticleNews/stor...?hub=TopStories

With the loonie nearly at par with the American greenback, more and more Canadians are buying new and used cars from the U.S.
Buyers say that Canadian autodealers haven't reduced their prices to reflect our strong dollar, so travelling across the border makes sense to those looking to save some money.

"Until the prices on the dealership lots change to reflect the parity in our currencies, there's a window here for car buyers to stretch their dollar," says Zabin Somani, a Vancouver Island resident who bought her car from the U.S. and imported it back to Canada.

Somani says she's been overwhelmed by questions from other Canadians wanting to do the same thing. So, she has set up a shopper's website to help others.

American dealers confirm they're seeing Canadians more and more.

"We're seeing Canadians here pretty much every day now," says Don Chahley, a car dealer in Bellingham, Washington. "Obviously, the Canadian who comes down here and saves several thousand on a car, when they get home they're going to show it to all their friends and neighbhours," says Chahley.

They then show others: "Look what I bought, look what I paid, they're going to come down here too."

But if you're thinking of going South to buy your next car, there are a few things you should know. Some dealerships won't sell to Canadians. Toyota, along with a number of other manufacturers such as GM, Audi, and Volkswagen, all have agreements with their dealers not to sell to Canadians. So, if you want their products you have to get them in Canada and you'll likely pay more.

old_bold&cold · September 19, 2007

I will point out the car issue and use the Corvette. The Base price for a corvette in the USA is $49,000.00 Here in Canada it is $66,000.00. When ypou say to the dealer that you would be better to buy in the USA they say they will not honour warranty if the car is purcased in the USA, but my last Corvette was purcased there and I had no problem with warrant here in Canada. Mind you I only had 3 warranty issues while I owned the car. I sold that car for just as much as I paid for it and had it for 6 years. When I see this price gouging by deallers it just makes me have no sypathy for them at all.

August1991 · September 19, 2007

What about Ikea?
Go to Ikea.com

And then Ikea.ca

This is known as Purchasing Power Parity, or what The Economist calls The Big Mac Index.

I would find it hard to believe that, in general, the Canadian retail market is any less competitive than the US retail market. Local taxes (including property taxes), local regulations (and their costs) and in particular local rents may explain any discrepancy. Of course, it could also be that the Canadian dollar is over-valued, as PPP theory would predict.

In the case of new cars, I would imagine that the car manufacturers are playing a complex game of oligopoly and price discrimination - coupled with any costs associated with local regulations.

Most of the differences in the price of gasoline is explained by local taxes.

When our governments impose costs such as payroll deduction taxes (EI, CPP) and also requires that businesses act as a tax collector (GST, PST), completing many forms in the process, keeping records - and when our governments also impose a long series of regulations concerning, for example, worker safety, building codes, zoning restrictions, special licences, inspections of all sorts - then these show up as costs of doing business. And higher prices.

One of the reasons that some economists argued in favour of the euro is that it would make comparative shopping in Europe easier. Maybe we should wait until parity and then adopt a fixed exchange rate at one Cdn dollar = one US dollar.

Errrr.....
Ok can you explain this further?

If you were an American thinking of buying a cottage or ski chalet in the Laurentians in 1975, would you have gone ahead with your purchase in 1977 after the election of teh PQ?

What would the cumulative effect of many, many such decisions be on the exchange rate?

Edited September 20, 2007 by August1991

gc1765 · September 20, 2007

All I did was pick a random sofa. And there you have it folks, 50% difference in price. This is inexcusable. 15% is the MAX acceptable due ot our taxes and just being 'Canada' overhead. But 50% is just silly.

Instead of complaining about high prices, why don't you open your own business and sell that sofa for cheaper? And if not you, then someone else will - that's how the free market works.

jdobbin · September 20, 2007

I would find it hard to believe that, in general, the Canadian retail market is any less competitive than the US retail market. Local taxes (including property taxes), local regulations (and their costs) and in particular local rents may explain any discrepancy. Of course, it could also be that the Canadian dollar is over-valued, as PPP theory would predict.
In the case of new cars, I would imagine that the car manufacturers are playing a complex game of oligopoly and price discrimination - coupled with any costs associated with local regulations.

Most of the differences in the price of gasoline is explained by local taxes.

When our governments impose costs such as payroll deduction taxes (EI, CPP) and also requires that businesses act as a tax collector (GST, PST), completing many forms in the process, keeping records - and when our governments also impose a long series of regulations concerning, for example, worker safety, building codes, zoning restrictions, special licences, inspections of all sorts - then these show up as costs of doing business. And higher prices.

The Consumers Association of Canada has stripped away the issue of taxes on prices and found that the difference for numerous items is out of whack by 10 to 40%.

On the issue of food where there is no tax, the differences are stark.

August1991 · September 20, 2007

Instead of complaining about high prices, why don't you open your own business and sell that sofa for cheaper? And if not you, then someone else will - that's how the free market works.

It's curious that people complain about high prices for the things they buy but also compalin about the low prices for the things they sell - namely their labour services.

When someone complains about a bias and the bias always seems to be contrary to their interests, then it's likely that the person is not an objective observor.

The Consumers Association of Canada has stripped away the issue of taxes on prices and found that the difference for numerous items is out of whack by 10 to 40%.
On the issue of food where there is no tax, the differences are stark.

Our food marketing boards cause large subsidies to farmers, and high prices to consumers.

Geoffrey once provided a link to a truly terrifying study showing that consumers, through higher prices, subsidize annually each dairy farm in Canada about $120,000.

Edited September 20, 2007 by August1991

geoffrey · September 20, 2007

Parity is one of those things that looks nice, but in reality means nothing. The difference economically between a .98 and 1.02 exchange rate either way is minor. As we can easily see right now, exchange rate changes of 30 or 40 cents do little to affect prices. And we are to care about a few pennies.

It's mostly symbolic. More of a weakened US economy than a strengthed Canadian one though. Note that the world speculates on Canadian dollars as if it's tied to petroleum products. It's another symbolic thing. Canada is no longer a manufacturing nation, we are an first and foremost, an energy exporter. This bodes well for Alberta and Newfoundland (and Saskatchewan). What it means for Ontario and for Quebec? Probably not good things.

Ontario's and Quebec's economies have been bouyed by the low dollar for some time now. Can they become 40% more productive to meet the challenge? It will be good long term, as efficiencies will have to be realised to keep roofs over heads. But in the short term, Canada's manufacturing base is in for some very tough times.