Here’s Why the Canadian Dollar Sucks So Much!

The Canadian Dollar is now at its lowest point in a while and analysts predict it could fall below 70 cents US in the coming months.

I just went to Portland with a few buddies for a boys weekend out (yes, it was great) and boy did it hurt our wallets. A $8 beer in the US cost us over $11 CDN and a brunch with the boys was a small fortune.

However, even if you never leave Canada, the exchange rate is going to affect us.

How is Canada’s Dollar Valued?!

At its core, the value of the Canadian dollar is based on supply and demand. If people or businesses around the world want to purchase Canadian stocks, products, or real estate, it increases demand for the currency and it increases its value.

The exchange rate is the price of one currency against the price of another. So, if we Canadians need American currency (which we do), it drives up the price of the US dollar and concurrently, it weakens the Canadian dollar vis-a-vis the USD.

Generally, there are two big selling features that make investors want to put their money in one country or another. 

First, if the economy or perception of an economy is doing well, money flows into that economy and the value of their currency increases. And right now, the US economy is doing much better than the Canadian economy. The Canadian economy is moving in the other direction.

Just as an example on how our economies are differing:

Unemployment Rate: US 4.1%  |  CAD 6.5%

Q3 GDP Growth: US 2.8%  |  CAD 1%

Debt-to-Income: US 100%  |  CAD 180%

Secondly, people, businesses and even countries will want to invest and park their money in countries with higher interest rates… While Canada has lower rates already with them having a downward future trajectory, the US has largely evaded cutting as much as we have and their cutting outlook is smaller than ours. So far, Canada cut 1.25% off our prime rate, while the US has only cut 0.75%.

Donald Trump

He has a very different economic plan than the current administration. He’s promised to slash taxes, deregulate, spend more in some cases, and all of this is expected to boost growth. The market reacted positively to Trump’s win (stocks increased) and the loonie fell against the dollar as soon as he was elected. 

The head of the US Federal Reserve then signalled that the US may not need to lower their Prime rate, which would increase the gap between the US and Canada even more and the Canadian dollar slid again.

*There are many who expect Donald Trump’s policies to bring back inflation. Growth can lead to inflation so it may not all be rosy based on these policies.

How Does This Affect Canadians?

Obviously snowbirds and visitors to the US will be affected with decreased purchasing power. 

But, imports also affect us in Canada. This is hundreds of billions of dollars each year. 

But it’s the impact on businesses that may affect us the most where a weaker Canadian dollar means that we’ll import more inflation.

Inflation?

Didn’t we just get rid of inflation? 

So if our dollar decreases, we would increase the income and growth for some industries such as our oil and gas industry, auto parts, lumber, the movie industry, and our exports. With a low Canadian dollar, more people look towards Canada now for their goods and services. However, Trump’s tariffs, if they become a reality, will completely negate any positive impact our lower dollar has on our exports… this is a real wild card.

Long story short, our dollar is much lower than the USD because of how well the United States is doing vis-a-vis Canada, and because there is just a lack of confidence in our economy. Further, our interest rates, which are lower than the US’s, and are expected to continue to decrease lower, are affecting inflows and outflows (outflows mostly for Canada and inflows to the US) of money across the border.

I hope you learned something 🙂 I know I did while researching this piece – mostly from this CBC video.

And now for a little picture!!

Little Liora just loves looking up to (literally and figuratively) her big sister Miri. Yeah, cuteness galore 🙂