Weak Dollar Killing Canada

Canada has had one problem after another with its big elephant to the south.  The United States has long been a source or irritation and envy; its culture, economy, and politics have all played major parts in the Canadian psyche and way of life. But Canada is our single most important trading partner and it is in real trouble as the US dollar sinks in value.

For many years now the Canadian dollar floated way below the American one.  It hasn't been since 1957 that Canada's dollar has been as strong vis-à-vis ours -- at almost 1.06 US dollars for 1 Canadian dollar.  This huge reverse in value of the two currencies has meant similarly huge problems for the Canadian economy.  Most major Canadian companies, and many small and medium ones, export most of their products to the US -- many over 90%.  The reverse in value of currency is hurting exports by Canada significantly.   Just think about it.   Canada's currency has risen about 70% against the US dollar in the last five years -- and 20% in the last year.  And all this has happened at a time of very high oil prices and major competition from Asia

Canada is in far more trouble than we are -- and their only recourse is to lower prices.  But lowering prices is not an easy solution, especially against higher labor costs and higher goods and service costs.  Canada's economy, in fact, is facing devastating impacts from all this.  We may worry about a weak dollar, but Canada must worry even more.  We tend not to think of the negative side of a weak dollar on our trading partners -- concentrating on the win from US companies selling abroad experience from a weak dollar.  But Canada's experience is just the opposite -- and the impact is crushing if not worse.

Harry Greenleaf
Harry Greenleaf: Harold Greenleaf, BA, UCLA; MBA, UCLA is an independent financial consultant in Los Angeles. Please feel free to reach out with any questions on my articles at hgreenleaf@aol.com.

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Comments

  • Brian

    November 05, 2007

    Shouldn't we then short the general canadian stock market, possibly through an etf?

  • Canucker

    November 05, 2007

    This article is bunk. Canada's economy is booming. Their principle export to the US is energy and raw materials. Canada is the US's largest source of energy - a little known fact. Last I saw, the price of energy was going through the roof and Canada has been benefitting. Same with commodities such as gold, etc.

  • Eros Mazzillo

    November 08, 2007

    Look at Germany. They depend on exports of high ticket items to the US and they will no longer be able to be competitive with these things.

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    November 14, 2007

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  • me

    November 17, 2007

    Canada's economy is on fire. What's the writer talking about? The TSX (Canada's main stock market) has shown double digit growth for years.

  • JRubinstein

    November 18, 2007

    Go to Vancouver and ask the fruit and vegetable growers and the other producers of items for export to the US whether they can be competitive with a 25% fall in their sales prices. They will tell you that the answer is no and that this sudden fall is jeopardizing their livelihood.

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