Since trading above par with the U.S. Dollar (USD) in 2012 and 2013, the Canadian Dollar (CAD) has been spiraling downwards.
As of writing this, you can buy about $0.77 USD for $1.00 CAD. This sharp decline over the past 2-3 years has had some dramatically different effects on Canadians depending who you are and what you do. So when people ask me if the weak Canadian Dollar is a bad thing, it’s not a straight forward answer. To help clear some things up lets list some Pros and Cons of a depleted CAD.
- Manufacturing and Exports - USA is currently Canada’s largest trading partner with $632 billion in total goods traded during 2013 (source). Since most transactions occur in USD, Canadian manufacturers and exporters will feel a boost in their revenues due to the currency or foreign exchange (FX) rate.
- Investors – This one is a double edged sword. If you owned USD investments like stocks or real-estate through this dip, you have benefited nicely.
- Tourism – With a weak Loonie, tourists tend to flock towards Canadian attractions. Who wouldn’t want a cheap vacation to arguably one of the most beautifully diverse places in the world?
- Real Estate – This one is pretty obvious if you live on the West Coast – especially Vancouver. It is easy to see the how the weak CAD has influenced foreign investment in Canada.
- Film Industry – You might have noticed an influx in feature films being filmed in Canada over the past couple years. Often when the Loonie is weak, big time film productions are moved to the Great White North to reduce their operating costs.
- Canadian Economy – Overall economists tend to agree that a weak Canadian dollar benefits the Canadian economy positively. Lead by a boosts in manufacturing, exports, tourism, and foreign investments. .
- Travelers and Cross-Border Shoppers – Anyone who travels to the States will undoubtedly realize that the CAD doesn’t go as far as it did 2-3 years ago. Snowbirds, and cross-border shoppers will feel the squeeze immediately. Plain and simple: vacations, gas, clothes, or even that block of cheese is much more expensive now that the Loonie has dropped.
- Another aspect for shoppers; check the label on where you goods are produced. If they are made in the US, the price will be impacted by the exchange rate. Buying domestic may prove very competitive. This is why Canadian Manufacturers are enjoying better days.
- Investors – As mentioned above this one is a double edged sword. If you are looking to buy investments in USD now, you will be cutting your performance down just from the FX rate.
- Hockey Teams – Hockey teams pay their players’ salaries in USD, but collect their income in Canadian. This could make it harder for Canadian teams to offer competitive salaries compared to the American teams. On the other hand, a Canadian team hasn’t won the Stanley Cup since the 92-93 Montreal Canadians!
While the pros of a weak CAD effect the Canadian economy positively as a whole, it’s much easier to focus on how the low Loonie will affect you on a personal level immediately. So when people ask about a falling Canadian Dollar, depending on who you are and what you do, the answers will vary. At the Tycuda group we are licensed in both the U.S. and Canada, so regardless of which side of the border you live on, we can manage investments to take advantage of the FX opportunities for both Canadian and US investors.
The bottom line is that foreign exchange rates can make a huge difference in costs and ultimately performance to businesses and investments. Not knowing how FX rates can impact you and or your business can be very expensive.