Canadian Dollar at Parity with the US Dollar

trex · September 30, 2007

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.

Mconomics?

geoffrey · September 30, 2007

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.

I won't go into saying whether or not that is a wise decision, but I think your currency prediction is not unreasonable. It seems like the BMO analyst agrees with both of us to some extent.

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.

The Big Mac index is an excellent way of looking at things. Obviously, the bigger picture must take in other industries, but it's a solid baseline for comparing purchasing value around the world.

It seems like Canadians are immediately concerned about cars and books, for whatever reason (I tend to buy more food than books or cars). These areas seem to have wider variation than your Big Mac value.

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.

You need to sell off inventory bought at higher values first. Looks bad on the income statement. However, there are other, larger factors at play.

Such as the Canadian dollar is not actually worth what you buy/sell it for. Big part of it. Watch the dollar return to reflect the price difference you see. Products are real things and their sale is a real thing. Currency trading is mostly speculative or done to complete speculative transactions. I think the real PPP is a more accurate reflection of a currency's value than it's closing trading price.

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

You know as well as I do that a free market will not allow that. Perhaps it's a test to see how free and open our markets really are.

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

An excellent time, no doubt. How many companies are though? Have you heard of GM Canada buying new equipment? How about Alcan? I'm curious.

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

It will correct sooner than later.

jdobbin · September 30, 2007

You need to sell off inventory bought at higher values first. Looks bad on the income statement. However, there are other, larger factors at play.
Such as the Canadian dollar is not actually worth what you buy/sell it for. Big part of it. Watch the dollar return to reflect the price difference you see. Products are real things and their sale is a real thing. Currency trading is mostly speculative or done to complete speculative transactions. I think the real PPP is a more accurate reflection of a currency's value than it's closing trading price.

You know as well as I do that a free market will not allow that. Perhaps it's a test to see how free and open our markets really are.

An excellent time, no doubt. How many companies are though? Have you heard of GM Canada buying new equipment? How about Alcan? I'm curious.

It will correct sooner than later.

If the inventory situation was truly all the problem is, then we will see a correction. Many analysts though are saying the 24% discrepancy is not just about inventory but businesses thinking Canadians are willing to pay more.

Canadians are crossing the border frequently. Canadian business will either adapt their prices or lose customers. Those that attempt to fix prices will face civil suits as the automobile companies are facing now.

Some Canadian companies such as E.H. Price are adapting as fast as they can to higher end products, investing in technology and maintaining their employment base while increasing productivity. I have no idea if international companies like GM or or Alcan are doing the same. Decisions on those companies doesn't happen in Canada.

As far as earlier correction, what do you think the true value of the dollar is: under 80 cents?

Some people have suggested the dollar be fixed lower. If speculation just hurts Canada, why not take it out of the picture?

Edited September 30, 2007 by jdobbin

Wilber · September 30, 2007

The Big Mac index is an excellent way of looking at things. Obviously, the bigger picture must take in other industries, but it's a solid baseline for comparing purchasing value around the world.

On the left coast we use Starbucks.

old_bold&cold · September 30, 2007

I really do not see the CDN going lower then the USD for at least the 6-10 years. The Canadian economy is very good and we seem to have stable monetary practices working for us. Many think the CDN will hit $1.10 by this spring, and that I can not argue with, as I feel the USD is what is going down lower more then the dollar going higher. the CDN has gained against other currencies such as the euro and the yen etc. so no one should be thinking that there are no reasons for this rise, because the values of these other currencies has also risen against the USD, but not quite as much as the CDN. For those saving their USD paychecks that I read earlier, they had better have the ability to keep these for many years, as there will not be any quick corrections coming that way any time soon. If I had to guess just how long our dollar will stay above the USD, I would say a decade, would be my best guess.

M.Dancer · October 1, 2007

http://www.abc.net.au/news/stories/2007/10/01/2047661.htm

US $ losing ground against the Australian Dollar.......

jdobbin · October 6, 2007

It will correct sooner than later.

When do you think that will be? It is $1.02 now.

http://www.cbc.ca/money/story/2007/10/05/looniejump.html

Surprisingly strong Canadian job growth figures for September sent the loonie shooting upward against the U.S. greenback in foreign exchange trading Friday.
The Canadian dollar gained more than a cent and a half to reach a new 31-year closing high of $1.0185 US.

That's the dollar's biggest one-day gain against the U.S. currency since June 1, 1970 — when the Canadian dollar was permitted to float.

Edited October 6, 2007 by jdobbin

M.Dancer · October 9, 2007

When do you think that will be? It is $1.02 now.
http://www.cbc.ca/money/story/2007/10/05/looniejump.html

Most pundits are predicting at least a year of a strong loonie and some are going out on a limb by predicting it will near $1.10 against the US Peso. I hope if we hit $1.10 USP it will take a long time and gently rise.

Drea · October 9, 2007

for the record...

Average income Canada

Average income USA

M.Dancer · October 9, 2007

for the record...
Average income Canada

Average income USA

That is an example of apples and orangutangs.

The Canadian figures are aftertax, the US is pre tax.........and it doesn't even begin to compare what value the taxes bring to the household.

bush_cheney2004 · October 9, 2007

Most pundits are predicting at least a year of a strong loonie and some are going out on a limb by predicting it will near $1.10 against the US Peso. I hope if we hit $1.10 USP it will take a long time and gently rise.

Gosh I hope so...after 30 years of being the lowly loonie, enjoy it while you can. How much for that car?

msj · October 9, 2007

We can discuss the fundamentals of the US and CDN currencies all we want.

But as the old saying goes: the market often remains "irrational" longer than investors can remain solvent.

sharkman · October 13, 2007

The issue of car prices in Canada vs U.S. is not going away. Some have saved over 8000 by simply buying across the line, adding the daytime running lights and km speedometer, and paying whatever they ask for at Customs Canada. Honda has responded by not honoring warranties of American cars brought into Canada, but they charge 2 different prices for the same Honda civic built in a Canadian factory. If said car happens to end up on an American lot, it's much less.

If this issue is still around when I am looking to get a new car, I will not hesitate to stick it to Canadian dealerships.

Fortunata · October 13, 2007

Gosh I hope so...after 30 years of being the lowly loonie, enjoy it while you can. How much for that car?

.....yawn .......

old_bold&cold · October 14, 2007

The car companies are all trying to save face and their pricing on cars in Canada, but they know that is a mugs game and will have to capitulate soon and drop prices big time. I would say give it to mid winter and you will see that they will begin pricing that is comparable. The companies like Honda will try the old, "put more options in it and keep prices high trick ", but in the end that will have to also go away. These guys will try every way to never reduce prices, because for them it means that they are saying the cars are worth less, and thta is never good for them. I am now noticing that a lot of used same year cars are now coming in Canada at the auctions etc, so this will also start to force the new car prices to balance out asap. Which ever one bites the bullet first will grab market share very quickly, bit the rest will notbe far behind.

jdobbin · October 30, 2007

Latest on the dollar:

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

he Canadian dollar continued to soar Monday, briefly reaching a value of US$1.05 for the first time since 1960 before settling at 104.90 cents US when the market closed.
The Canadian dollar gained more than a cent over its closing value of 103.80 cents US on Friday.

The last time the loonie traded this high was early 1960 -- when John Diefenbaker was prime minister.

Since the beginning of the year, the loonie has risen almost 19 cents US.

The gains by the loonie, often considered a 'petro-currency,' come as oil prices also reached a new trading high today.

Patricia Croft, VP and chief economist for Phillips, Hager and North Investment Management Ltd., said the loonie's continued rise remains due to the increase in oil prices and the bottom falling out of the U.S. dollar.

"Those two factors are putting the Canadian dollar on fire," Croft told CTV Newsnet on Monday.

"Today we have record oil prices, so that's part of the story, but the other element is the weaker U.S. dollar."

Oil prices hit US$93 a barrel Monday -- an all-time trading high -- following news that Mexico's state oil company was halting about a fifth of its oil production due to a storm.

I wonder how much this can last without there being severe repercussions for businesses that cannot adjust so fast. We could see massive unemployment in the manufacturing sector as exports dry up.

bush_cheney2004 · October 30, 2007

....I wonder how much this can last without there being severe repercussions for businesses that cannot adjust so fast. We could see massive unemployment in the manufacturing sector as exports dry up.

...and to add insult to injury, Canadians stream south to find "bargains". Passport Canada activity is up 40% over same time last year.

October 30, 2007

I don't think it's going to end anytime soon, unless they eventually elect responsible leadership in the U.S. Some predict the Canadian dollar to be worth twice the U.S. dollar within a few years.

bush_cheney2004 · October 30, 2007

I don't think it's going to end anytime soon, unless they eventually elect responsible leadership in the U.S. Some predict the Canadian dollar to be worth twice the U.S. dollar within a few years.

Tsk..tsk....still dependent on what those crazy Americans will do? A pity......

October 30, 2007

THe value of the U.S. dollar is very dependent on what Americans do. Start illegal wars and run up record deficits and the dollar drops into the toilet.

ScottSA · October 30, 2007

I won't go into saying whether or not that is a wise decision, but I think your currency prediction is not unreasonable. It seems like the BMO analyst agrees with both of us to some extent.
The Big Mac index is an excellent way of looking at things. Obviously, the bigger picture must take in other industries, but it's a solid baseline for comparing purchasing value around the world.

I'm usually a contrarian, but this is a no brainer. I'm moving significant money into USD interest bearing accounts, and leaning into metals quite a bit heavier, especially those like Harmony Gold, which are in a slump for reasons unrelated to the price of gold. Yes, as a disclaimer...I do have HMY stock lol...

ScottSA · October 30, 2007

THe value of the U.S. dollar is very dependent on what Americans do. Start illegal wars and run up record deficits and the dollar drops into the toilet.

That's just a dumb statement.

ScottSA · October 30, 2007

Latest on the dollar:
http://www.ctv.ca/servlet/ArticleNews/stor...?hub=TopStories

I wonder how much this can last without there being severe repercussions for businesses that cannot adjust so fast. We could see massive unemployment in the manufacturing sector as exports dry up.

Get ready to buy Canadian stocks when they get cheap.

shavluk · October 30, 2007

Latest on the dollar:
http://www.ctv.ca/servlet/ArticleNews/stor...?hub=TopStories

I wonder how much this can last without there being severe repercussions for businesses that cannot adjust so fast. We could see massive unemployment in the manufacturing sector as exports dry up.

The sad part is very few see the American dollar tanking while they look at the Canadian dollar.

22% gain to the Canadian dollar is a smoke screen and its really an American meltdown when looking at oil or gold.

Like Coot said,,,,,,,

bush_cheney2004 · October 30, 2007

THe value of the U.S. dollar is very dependent on what Americans do. Start illegal wars and run up record deficits and the dollar drops into the toilet.

Actually, the record deficits as a percentage of GDP were for WW2. But I suppose that war was "illegal" too. At least you admit it wasn't the "Bush tax cuts"...LOL!