Today the Canadian dollar has fallen to 25% below the Greenback. Analysts think they could see a 30% differential in one week. Who could have foreseen this a year ago (October-November 2007), when the Canadian dollar was 10% stronger than the US dollar (at the all-time high, one Canadian dollar bought $1.10 American)?
The latest central bank rate cut aside, it isn’t the Canadian economy causing the loonie to fall. We know the Canadian fundamentals are in better shape than the U.S.
It’s because all around the world, foreign currencies are returning to their homelands as US investors dump their foreign investments in order to hold cash, i.e., Greenbacks. This causes the nominal value of the Greenback to rise, since there’s less of it in circulation and more demand for it.
If this is correct, then as soon as we see the markets improve and foreign investments looking more desirable, the Canadian dollar should find its way right back up again like a cork jumping to the surface of the water. There might even be some pent up demand caused by this extended pseudo-moratorium on loonie-buying. I mean c’mon, I’ll repeat that the Canadian banks have recently been declared the safest in the world (above Luxembourg and Switzerland). We still hold the most potash, we provide the safest supply of oil to the US, and we had no real estate sub-prime problems (as some European countries even did).
In the meantime, I’m thinking of strategies for getting around this insane currency rate business. One strategy, obviously, is to be paid in US dollars. I can do this by buying dividend-paying US stocks (a much slower way to build up those dollars), or just by finding an extra source of employment income in the US. If you’re a Canadian also currently living in the US, I’d love to hear more from you about the strategies you’re using. If anyone else has ideas too, feel free to chip in. Until then I’m spending 25% more for everything from public transit to groceries. Now is not a good time to buy larger ticket items if you’re working from the loonie.
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{ 2 comments… read them below or add one }
Interesting view. I know most books are more are more expensive in Canada. Groceries and transportation ally eats into your cost of living. It really is amazing how all this stuff is so intertwined.
Intertwined is right – you should read the book “The World Is Curved” – it goes into detail how the world economy is a complex dynamic system that is really quite fragile.