Canadian Dollar at Parity with the US Dollar

[Guest coot]

I've never understood why people complain about high prices. If a store is charging too much money for a product, the solution is simple - Don't buy that product.

So when they're getting burned, they should either start a competing business or boycott the product, but never complain? What if starting a competing business is a ridiculous notion, and you need the product being sold? I think complaining makes a lot more sense.

[gc1765]

So when they're getting burned, they should either start a competing business or boycott the product, but never complain? What if starting a competing business is a ridiculous notion, and you need the product being sold? I think complaining makes a lot more sense.

If you are talking about food, shelter or medicine, and you can't afford these things, then you might have a point. However, mikedavid was complaining about the prices at Ikea. That's not what I would call essential.

Edited September 21, 2007 by gc1765

[Visionseeker]

OMG seems like a recipe for staglation.

Nail, Head, BANG!

You have keyed-in on precisely what we can expect from the US economy in the short-to-medium run.

The CDN$ is in a petro currency cycle that will only further feed a growing gap between currencies. Some say a 1.05 loonie is within the realm of possibilities, I say 1.10 is too. Each decline of the greenback raises the price of oil, which in turn raises the loonie, which in turn increases the cost of commodities, and then the cycle begins anew.

The Feds can't raise rates now. A big chunk of the issues in the US economy are due to sub-prime mortgage holders bailing on properties when forced to re-negotiate. Raising rates only causes more defaults in the housing market.

The Fed can't continue to fight liquidity when doing so keeps weakening the greenback, eventually, they'll have to step back and just let things reset.

[Guest coot]

If you are talking about food, shelter or medicine, and you can't afford these things, then you might have a point. However, mikedavid was complaining about the prices at Ikea. That's not what I would call essential.

MikeDavid was using Ikea as an example of the overall state of consumer pricing in Canada. There is very little in the stores in Canada that is selling at the same (or even comparable) sticker price as it is in the U.S. Pretty much everything is more expensive here, so there is no avoiding getting burned. But heaven knows we shouldn't complain.

[gc1765]

MikeDavid was using Ikea as an example of the overall state of consumer pricing in Canada. There is very little in the stores in Canada that is selling at the same (or even comparable) sticker price as it is in the U.S. Pretty much everything is more expensive here, so there is no avoiding getting burned. But heaven knows we shouldn't complain.

Perhaps - I don't know, I'd have to see the price of food. But let's just say that food is too expensive in Canada, and it's unrealistic to start your own business. The great thing about the market is that chances are someone will. If Safeway is charging ridiculous prices for food, what is to stop IGA or A & P from charging less? If they charge less, more people will buy from them and they will make more money. But let's say, just for the sake of argument that Safeway is the only store in town, and you can't grow your own food. Basically, without Safeway, you would starve to death. Well....aren't you just glad that Safeway is there to sell you food?

[Guest coot]

The great thing about the market is that chances are someone will.

I'm not holding my breath that prices will go down unless people become enraged and demand they go down. Our dollar has been steadily improving for well over two years, and absolutely nothing has happened yet.

[Argus]

Tourism from the US is down but has been steadily increasing from Europe, Mexico and Asia.

An increase in the trickle of European and Asian tourists (Mexico??) will not make up for a drastic decrease in the flood of American tourists.

And a high Cnd dollar does nothing to encourage tourists from Europe or Asia either.

Edited September 21, 2007 by Argus

[M.Dancer]

MikeDavid was using Ikea as an example of the overall state of consumer pricing in Canada. There is very little in the stores in Canada that is selling at the same (or even comparable) sticker price as it is in the U.S. Pretty much everything is more expensive here, so there is no avoiding getting burned. But heaven knows we shouldn't complain.

Ikea is a bad example. First off it doesn't sell american made products so there's a CND duty on everything sold here. There is also a US duty on stuff sold there, and that duty may be less than here, I don't know.

Recently we bought a leather couch. We went a shopping and found that Ikea of all the big box stores was the most expensive. We ended up buying a couch from a local retailer, made in Canada by a Danish firm (Lind or Lindh) who have factories in Canada, the US and europe. We paid around $1400 tax and delivery included, at least $400 (before tax) less than an similar frame from Ikea.

[ScottSA]

Here's a tip: Buy silver. Not silver stocks, but the physical thing. 56:1 ratio to gold, and it's the safest affordable haven available.

[old_bold&cold]

Speculating on the silver markets is not what I would say is a safe bet. While many metals and other resources are going up in value the main reason for which is they are in demand for building todays machines or equipment. Gold is used in many of the hazardous use electronics, and is for ever being in demand by industries. Silver on the other hand is not used so much in industries and so the demand remains low. While it may never really drop or rise dramatically, it can slowly become worth less and less over the long term.

[Wilber]

An increase in the trickle of European and Asian tourists (Mexico??) will not make up for a drastic decrease in the flood of American tourists.

And a high Cnd dollar does nothing to encourage tourists from Europe or Asia either.

Not exactly a trickle in this part of the country and visits have been increasing even though the Canuck buck has also been doing well against their currency's. The loss of American tourism is certainly a large problem but it has been since 9/11 when our dollar was still very low. The exchange difference aggravates the problem but border issues are a bigger factor IMO, because many American politicians and citizens have adopted somewhat of a bunker mentality since 9/11. An attitude that doesn't apply to the people of most other countries.

We just hauled a trailer across Canada then back through the US and met lots of RV'ers from the US including people with California plates in St. Johns. We ran into several large Airstream and Tracs caravans from the US while in Newfoundland. Things will have to get pretty bad before these people will stop traveling. While in the US we were surprised at how many Americans think that you have needed a passport to enter Canada for some time, not to mention the increased hassles of actually crossing the border. When you tell them it is only required by the US and only to air and sea travel, not road until the end of the year, a lot of them did not know that. I really think the border issues are a more serious problem.

Until I was around 30 the Canadian dollar had been higher than the US all my life and there didn't seem to be a shortage of American visitors. The people who really want to travel, still will, the real difference will be in casual visits and I really think passport requirements will be a bigger issue than currency when it comes to Americans heading north. The low Canadian dollar didn't prevent Canadians from going south in the winter but it did limit their spending power while there.

Canadian business will have to adapt to parity in currency values and all levels of Canadian government will have to make sure that they don't put burdens on business that prevent them from being competitive.

[Guest American Woman]

The Canadian dollar has surpassed the U.S. dollar again today.

[Guest American Woman]

The Canadian dollar closed above the U.S. dollar Friday for the first time since 1976.

Link

[geoffrey]

The Canadian dollar closed above the U.S. dollar Friday for the first time since 1976.

Link

And now that everyone cashed their options, we'll see the dollar go back to it's proper value. There is zero basis for the canuck buck to be ahead of the US dollar, and this will be quickly reflected in the coming weeks.

[M.Dancer]

And now that everyone cashed their options, we'll see the dollar go back to it's proper value. There is zero basis for the canuck buck to be ahead of the US dollar, and this will be quickly reflected in the coming weeks.

Wanna bet?

A slumping US economy and a surging resource and oil commodity markets coupled w/ a strong Canadian economy is driving the almight CDN$.

[geoffrey]

Sure, you keep your canuck bucks and I'll buy a bunch of USD and we'll see who's ahead in a year.

Canada's productivity numbers are not sufficient to justify the difference. The US economy is growing much slower than usual, but still faster than Canada. And their productivity is still much higher. I'd rather still put my money into the States than here.

[jdobbin]

And now that everyone cashed their options, we'll see the dollar go back to it's proper value. There is zero basis for the canuck buck to be ahead of the US dollar, and this will be quickly reflected in the coming weeks.

Why do you think there is zero basis? Have you seen some monetary analysts who are saying it is due for a fall?

[kimmy]

And now that everyone cashed their options, we'll see the dollar go back to it's proper value. There is zero basis for the canuck buck to be ahead of the US dollar, and this will be quickly reflected in the coming weeks.

Zero basis? Did the price of oil drop overnight without my noticing?

So, clearly we're now suffering the less desirable consequences of the higher dollar... challenges for tourism, exports and manufacturing, higher cost of inputs (ie, labor paid in Canadian dollars) relative to outputs (on Canadian goods purchased in America). And the theoretical benefits of the higher dollar have so far not translated into fact, except for in the case of Canadians traveling to the US. So I am having a hard time seeing this as a "good news" story for Canadians.

I am quite interested in the class action lawsuit filed last week against several automakers. Automakers have, so far, been almost completely silent on the high price differences between the two countries (one spokesman for one of the defendants mentioned something to the effect that Canadian regulations, regarding things like daytime lights, drive up the price of Canadian vehicles. (It costs thousands of dollars to make the lights come on during the day?))

I find it interesting that of all the automakers, Porsche seems to be the only one that has so far cut prices in response to the dollar's upsurge.

(Pick one:

It doesn't make much sense: Porsche is somewhat of a niche which doesn't really have a direct competitor in Canada.

It makes perfect sense: Porsche's target customer is more financially savvy than the average Canadian and probably more perceptive of their buying power.

It doesn't make much sense: Porsche builds cars in Germany, not the US. Shouldn't the Loony's price relative to the Euro should be the issue?

It makes perfect sense: Porsche is a premium brand with a high margin built into their pricing, so they're more able to adjust than other automakers who have less margin.)

Sadly, most Canadians are not in a position where the price of Porsches is a big day to day concern to them.

I would have thought that with certain automakers (notably "the big 3") struggling for market share, this would have been a big opportunity for them to win some customers. It appears they have instead waded into some bad publicity that they certainly didn't need.

-k

Edited September 29, 2007 by kimmy

[geoffrey]

Why do you think there is zero basis? Have you seen some monetary analysts who are saying it is due for a fall?

TD is saying it will remain around parity for some time, and it's less overvalued than in the seventies, but still overvalued.

BMO is saying it was overvalued at 94.5 cents in their quarterly outlook, considering the fundamentals.

"It will not remain this close to parity on a sustained basis given that the economic fundamentals just don't warrant it." Source

The PPP between C$ and USD is about .81:1 according to the OECD. That's a significant problem for the loonie to continue higher.

I hope no one loses too much money in the greed and excitment around this. I'm buying US dollars now.

--

One unfortunate thing alot of people aren't touching on is all of the Canadians that lost money by investing in US stocks over the last 4 or 5 years. A 40% rise in the Canadian dollar demands that you need to make 40% on USD investments in order to break even, and no one was doing that. So alot of Canadians have taken a hit. I'm happy I wasn't too heavily invested in US markets. However, this trend is predicted to change and I think US stocks are very attractive now that currency translation gains are a much more likely possibility.

--

I'm not offering investment advice and I hope no one would follow the advice of some random guy on a forum. Please don't do anything I say because I say it. Go talk to a professional. My disclaimer for the day.

[ScottSA]

TD is saying it will remain around parity for some time, and it's less overvalued than in the seventies, but still overvalued.

BMO is saying it was overvalued at 94.5 cents in their quarterly outlook, considering the fundamentals.

"It will not remain this close to parity on a sustained basis given that the economic fundamentals just don't warrant it." Source

The PPP between C$ and USD is about .81:1 according to the OECD. That's a significant problem for the loonie to continue higher.

I hope no one loses too much money in the greed and excitment around this. I'm buying US dollars now.

--

One unfortunate thing alot of people aren't touching on is all of the Canadians that lost money by investing in US stocks over the last 4 or 5 years. A 40% rise in the Canadian dollar demands that you need to make 40% on USD investments in order to break even, and no one was doing that. So alot of Canadians have taken a hit. I'm happy I wasn't too heavily invested in US markets. However, this trend is predicted to change and I think US stocks are very attractive now that currency translation gains are a much more likely possibility.

--

I'm not offering investment advice and I hope no one would follow the advice of some random guy on a forum. Please don't do anything I say because I say it. Go talk to a professional. My disclaimer for the day.

I agree that there are no reasons for this parity. It's a fluke driven entirely by US fed machinations, and it's nothing but a damned good chance to buy greenbacks. Our dollar may even fluke up to aroun 1.10 US, but when it finds its normal level, it'll be around .80 - .95. Since I get paid in USD, I'm keeping my paychecks that way and living off Cnd savings.

Disclaimer: WTF do I know? I'm a racist!

Edited September 29, 2007 by ScottSA

[sharkman]

I can't claim to be an expert either, but I've been hearing that one of the main reasons our buck is rising against the U.S. buck is their worsening financial condition. The U.S. government has been racking up huge deficits since 9/11 and has been spending like a drunken sailor. More recently and scarey is the emerging mortgage crisis, which is giving cause for some to talk about a depression. Since Canada has none of those problems, our dollar will continue to not sink as the U.S. one is and only give the appearance of rising.

[ScottSA]

I can't claim to be an expert either, but I've been hearing that one of the main reasons our buck is rising against the U.S. buck is their worsening financial condition. The U.S. government has been racking up huge deficits since 9/11 and has been spending like a drunken sailor. More recently and scarey is the emerging mortgage crisis, which is giving cause for some to talk about a depression. Since Canada has none of those problems, our dollar will continue to not sink as the U.S. one is and only give the appearance of rising.

The immediate reason is a .5 lowering of interest rates to accomodate the mortgage crisis. A number of other factors converged to magnify the immediate reaction. As to Canada having "none of those problems," just watch. Canada's economy is essentially dictated by the US economy, so if it goes into a tailspin, we'll be about 10 minutes behind it, as will the rest of the world.

[bush_cheney2004]

I can't claim to be an expert either, but I've been hearing that one of the main reasons our buck is rising against the U.S. buck is their worsening financial condition. The U.S. government has been racking up huge deficits since 9/11 and has been spending like a drunken sailor. More recently and scarey is the emerging mortgage crisis, which is giving cause for some to talk about a depression. Since Canada has none of those problems, our dollar will continue to not sink as the U.S. one is and only give the appearance of rising.

I agree with your sentence...the rest is pure conjecture. If the US has a recession / depression, Canada will have plenty of problems no matter what the exchange rate. What has been going on since 1976?

[August1991]

The PPP between C$ and USD is about .81:1 according to the OECD. That's a significant problem for the loonie to continue higher.

A Big Mac in Canada is about Cdn $3.63 and in the US it's about US $3.22.

That would put the exchange rate at 0.89.

One unfortunate thing alot of people aren't touching on is all of the Canadians that lost money by investing in US stocks over the last 4 or 5 years. A 40% rise in the Canadian dollar demands that you need to make 40% on USD investments in order to break even, and no one was doing that. So alot of Canadians have taken a hit. I'm happy I wasn't too heavily invested in US markets. However, this trend is predicted to change and I think US stocks are very attractive now that currency translation gains are a much more likely possibility.

True. I diversify, pick wisely and then live with the consequences. Edited September 29, 2007 by August1991

[jdobbin]

TD is saying it will remain around parity for some time, and it's less overvalued than in the seventies, but still overvalued.

BMO is saying it was overvalued at 94.5 cents in their quarterly outlook, considering the fundamentals.

"It will not remain this close to parity on a sustained basis given that the economic fundamentals just don't warrant it." Source

The PPP between C$ and USD is about .81:1 according to the OECD. That's a significant problem for the loonie to continue higher.

I hope no one loses too much money in the greed and excitment around this. I'm buying US dollars now.

However Canada got to parity, we will have to deal with the consequences of it. For Canadian businesses, it means passing the savings on from products they buy outside of Canada. There is still a 24% discrepancy on many of those goods on average. And no, not all of it is the result of Canadian taxes and marketing boards. Electronics should have less of a price spread given parity.

The flow of shopping traffic to the U.S. will increase if the price of goods remains out of whack in comparison.

For Canadian businesses, it is probably a great time to buy equipment to increase productivity.

The market will eventually find an exchange rate it finds suitable. We might have to live with this rate a while though.

Edited September 30, 2007 by jdobbin