Whither the Canadian Dollar?

[a_majoor]

I think we all realize the current "over parity" of the Loonie to the Greenback can't last; here is an analysis of what is going on and what to expect. Hint: buy all the greenbacks you can now, and profit from the correction next year:

http://phantomobserver.com/blog/?p=828

Dollar to Deflate?

EDC Global Export Forecast coverWell, it didn’t take long for someone in mainstream media to predict an end to dollar parity. Tavia Grant of the Globe and Mail has a piece on Export Development Canada predicting an 85 cent dollar by the end of next year.

The report is based on ECD’s Global Export Forecast, available here in PDF format. Of interest is this passage:

    EDC Economics’ model of the Canadian dollar shows that oil prices, non-energy commodity prices and the short-term interest rate differential vis-à-vis the United States are the main determinants of movements in the Canada-US exchange rate. Much of the run-up in the Canadian dollar this year to reach parity with its US counterpart can be explained by our model.

    After dipping below 85 cents US back in January 2007, the loonie increased almost 16 cents by early October. More than half of this increase (9 cents) can be explained by the run-up in the price of crude oil, while another 3 cents is due to the short-term interest rate spread vis-à-vis the US. This leaves about 4 cents unaccounted for, which can be attributed to speculative activity and momentum in forex [foreign exchange] markets.

    Looking ahead, our forecast calls for a downward easing in oil and commodity prices as global growth moderates – a pattern that will allow the Canadian dollar to ratchet down to around 85 US cents by the end of 2008.

You get the impression that, in EDC’s eyes, 85 cents US is the “normal” or default rate of the Canadian dollar: high enough to make cross-border shopping unattractive but not impossible, low enough to keep exports competitive with the rest of the world. Mind you, 85 cents has been the average rate of the dollar for the past twenty years, so this sort of thinking isn’t surprising.

EDC does offer a few caveats that could throw off their model. One is the possibility of a US recession; the second is the possibility of high prices for oil and other commodities such as wheat and oilseeds, that would keep the dollar at parity.

What else does the EDC predict? Big rises in exports from Newfoundland and the Prairies, some stagnancy in Quebec, declines in Ontario and BC. If you pay attention to federal politics, you’ll know that this forecast will provide fodder for opposition MPs from Quebec, Ontario and BC to demand some economic action. So it’s worth a read

 

[JBoyd]

Hmm interesting read, all the analysts I have watched on TV seem to expect it to rise, to be 1.10 by 2010 or something close to that.

 

[midget-boyd91]

When the dollar has been changing so quickly, I'm not going to give too much of my attention to the analysts. Maybe 6 weeks ago, or whenever it was the dollar was closing in on parity I had heard that an analist claimed that the dollar would rise, to a predicted 1.05 by the end of the year 2008. In those six weeks that passed since the analyst made that analysis the dollar has already hit 1.05 US.
Last year they were saying that the dollar would possibly hit parity, but not go over, then quickly back off to .90
I see it like a meterologist 'estimating' what the weather is going to be, without a doppler RADAR.



.....the analyst made that analysis .....  she sells sea shells  :  That took me nearly half a dozen tries to get it right, so hopefully I used the right words.

 

[Spencer100]

I was at a lunchen about 6 months ago with the Chief Senior Economist for the CIBC and when asked if the C$ would go to parity he said not very likely!  Our business was counting on it not raising.  We are having problems large problems because of US$ contracts.  Urgh!

I think it may still go up. But the manufacturing economy is much much worse shape then Ottawa realizes.  Urgh!  By the time Ottawa figures it out it will be to late!!

One good note for army.ca is that military equipment purchases should be much cheaper.....I guess we should buy American kit.

 

[TheHead]

I think we all realize the current "over parity" of the Loonie to the Greenback can't last; here is an analysis of what is going on and what to expect. Hint: buy all the greenbacks you can now, and profit from the correction next year:

http://phantomobserver.com/blog/?p=828

No we don't.  I've heard analysts say we wouldn't hit 1.05 till 2009, I've also heard analysts say we could hit 1.10-1.15 in 3 years.  We all don't realize anything we have no idea where our dollar is going to go. Hopefully skyward though.

 

[TheHead]

You do have post many good point thanks for sharing your insight into that.  I was only thinking about the Car at the time I'm buying for 20,000$ cheaper.

 

[old medic]

I recall watching the one of the major TV news broadcasts about a week before the dollar
hit parity. They had a "financial analyst" on who claimed the dollar would probably never
hit parity, but if it did, it would take over a year, maybe summer 2008.  It was 1.03 by the
next weekend.  It made me wonder about the sorry folks who were actually paying for
that kind of financial advice from him.

 

[Command-Sense-Act 105]

TheHead,

Oh, man, you are right on that.  NAFTA, CAFTA and our strong dollar make retail purchases, even in durable goods and transport, typically big-ticket items best purchased at home, a fantastic buy in the US right now.  Go for it!

Look at books - how many times do you see a book or mag with a cover price $4.95 US/$7.95 CDN.  WTF?  Now, there is no excuse for this pricing differential.  Unfortunately, our manufacturers and vendors had to pay for infrastructure, raw materials, plant, property and equipment in "old" 70 cent price differential dollars.  That effect is still being felt and causing a lot of industries heartache.

Not sure how it will play out in the long term.  My post didn't mean to slag you, just point out that in the macro economic view, our high dollar can cause us some serious growing pains.

 

[Reccesoldier]

I personally think parity is great and yes it will hurt our manufacturing sector in the short run but I dare say it will also force business' to be leaner and meaner which will bode well for Canada in the future no matter where the dollar ends up. 

It's about time business in Canada started expecting 8 hours work for 8 hours pay.  It's time to tell the unions to get back to work or there will be no work to be had, period. Full stop.

This monetary crisis could prove to be a cure for Canada's crumbling work ethic.

 

[JBoyd]

Well there is both good and bad to be had by the recent changes and changes to come in the Canadian dollar, If you look at it from the consumer side, it is great, things are cheaper. If you look at it from the manufacturers side, well not so good. The price of the Canadian dollar against the american has been long linked to national pride, so with it rising hopefully national pride will as well, I agree with the statements that it should stay at parity or just above, allow for a more competive market, and take some of the 'Our dollar is higher i will take what i want from you' attitude away from the americans. Despite the rise in the dollar, I do not think that in the long run it would hurt our Export economy all that much, It may slow it however those goods are still needed, whether it be on the home front or in a foreign one. If anything a rise in the dollar will spark new economical growth in different areas, allowing Canada to become a stronger country as a whole, perhaps even start to turn a profit (as profit losses over the last 20 years have also been linked to much higher American dollar.

However one thing is for sure. Do not listen to the analysts, it is clear they dont know their a$$ from a hole in the ground.

 

[Greymatters]

However one thing is for sure. Do not listen to the analysts, it is clear they dont know their a$$ from a hole in the ground. 

Although they use scientific tools, it is not an exact science, and none of these posers can accurately predict where the dollar will be next month, next year, or next decade.  If one of them was ever that good that he was right all the time he would be snapped up by one of the fortune 500's and we'd never hear from him again...

 

[Bomber]

This all works out well for me, I am crossing the border some time this weekend to buy a new Washer and Dryer team.  Savings should be around 500 bucks after the fuel, food, and GST/PST are calculated into it.  NAFTA works for me.

 

[JBoyd]

This all works out well for me, I am crossing the border some time this weekend to buy a new Washer and Dryer team.  Savings should be around 500 bucks after the fuel, food, and GST/PST are calculated into it.  NAFTA works for me.

To maybe help save you some money, I know many merchants across the company are offering US prices on their products.

 

[Bomber]

Tell me who, cause my clothes need a cleaning.

 

[Bruce Monkhouse]

I would find a chain store, go to the American part of their website, print off the prices, hit my local one and ask them to match or......

 

[JBoyd]

Well I have heard of book stores for instance offering american cover price, or car dealerships offering american prices on their vehicles. you would have to take a look around but I am sure you will be able to find quite a few, I dont know all of them off the top of my head