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A Lower Dollar – How Does it Affect You?

With the Canadian Dollar at 4 year lows relative to the U.S Dollar, it seems like just a few months ago where the Canadian dollar was at par with the U.S Dollar.  Oh wait, that was a few months ago!  Since the middle of July, the loonie has dropped more than 27 cents (as of 10/24/08) and it’s possible that it could go further in the short term.  What’s really impressive about the surge is that most of the move has been in the month of October.

To some, a fluctuating currency doesn’t make a big difference in day to day life.  However to others, it’s the difference between being employed or not as it can have profound influence on currency dependent industries.

What does a lower dollar affect you?

  • Those who are paid in USD will get an extra boost in their income.
  • It is more expensive to buy U.S items and more expensive to travel to the U.S.
  • Canadian exports will increase, thus increasing manufacturing jobs in Canada.
  • Canada will be a cheaper travel destination, thus increasing the tourism industry.
  • It is now more expensive to buy U.S stocks if you need to do a currency conversion at todays rates.

To add to this discussion, there are some economists that predict that the Canadian dollar will bounce back soon as the buying of the U.S greenback due to short covering will decrease significantly.

For those who agree with the economist prediction of a Canadian dollar quick recovery, Horizon BetaPro has an ETF that covers the USD bull/bear – HDU and HDD.  Note that currency trading is extremely risky and is something that I personally stay away from.

Question for you, how has the lower Canadian dollar affected you financially?

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 24 comments… add one }
  • Four Pillars October 27, 2008, 8:56 am

    Hey, you and Cheap wrote the same post today! :)

    Mike

  • Dividend Growth Investor October 27, 2008, 10:37 am

    It actually makes my TD ADR’s less valuable in US dollars. However the slide in the CDN$ is good for the canadian commodity exporters since it offsets part of the losses in oil, gas, etc..

  • Cow October 27, 2008, 11:04 am

    The main direct way it affects me is that I’m still paying off student loans in USD, as that’s where I went to university. Fortunately, I buy USD a few months at a time, so I’m still working with money I bought a couple of months ago.

  • Scott October 27, 2008, 11:07 am

    DGI — BUT…if our largest export partner, the US, is broke and buying our commodities at the same levels as before, then a lower dollar means even less money for the energy (or any) exporters. Doesn’t matter how cheap it is if they don’t have the money to buy it! I don’t know how the C$ is stacking up to other world currencies though. Stable?

    It effects me financially when I trade options. It costs more but I get that back on the return, so it’s not really a “loss” per se.

    Personally, I was going to take a trip to San Fran in the spring (planned at par dollar) but I’m not sure I want to pay a 20-30% premium for everything now. Although I did read an article where a guy took a trip to NYC and got great deals on Priceline.com because no-one is spending the States right now (he was staying half-price at 4-star hotels at eating in empty 4-star restaurants!)

    Bottom line: research. It’s not as easy now as it was before to get the same US$-C$ deals. And some of it is unavoidable.

    Personally, I do think the US$ will crash again and we will return to above par. Don’t ask me anything past that because I don’t have a clue! But so what? Who wants to visit a depressed, shut-down, unemployed, angry, desperate country? Yikes.

  • Jordan Clark October 27, 2008, 1:01 pm

    The dollar difference affects my family because we have been thinking to buy a popup tent trailer. The dollar parity made prices just across the border in Bellingham/Seattle significantly less compared to buying one locally. Now that those prices have gone up 27% it’s not likely to be within our budget to buy one this year. My only hope now is the bad economy and fear of a recession will cause some over extended consumer to sell their trailer at a fire sale price.

  • Pat October 27, 2008, 1:04 pm

    I keep US business income and expenses in separate accounts, and not convert unless I have to, which I usually don’t. I don’t speculate on the exchange rates.

  • Wilson October 27, 2008, 1:52 pm

    Most of the money I make comes in usd so this is a really good time for me

  • Nurseb911 October 27, 2008, 4:28 pm

    As a Canadian resident I earn all my income in CDN$ and don’t use USD unless I’m south of the border for travel/business reasons or investing. Around this time last year I did a few big purchases of USD when the CDN$ was around $0.99-1.05 for my RSP. While it was simply a move meant for the long-term as I perceived the USD would strengthen the timing couldn’t have been better. I haven’t invested all that USD yet, but I don’t have to worry about the conversion right now which could be painful for an investor.

  • jpohl October 27, 2008, 6:16 pm

    I have to buy many of my supplies from the states. It is the only place I can find some, and the discounts I can get for others still makes it more cost effective than buying within Canada. This is especially true since I discovered shipping via usps.com. One company in Georgia even offered to send me free samples (they are at present the only company in the world offering a certain product) so I could be a beta tester for this new more cost effective means of international shipping. I saved hundreds shipping with clip and ship 8-10 days international priority from three different suppliers in the states a few weeks ago (instead of ups which many American companies automatically use.) I had to explain to one of these suppliers that saving their international costumers money could be good for their business. This discovery will more than offset any loss from the change in the dollar, and I can also afford to spend more on necessary supplies than on shipping. In some cases I also save shipping directly from manufacturers. If people are encouraged to find smarter more cost effective ways of doing things perhaps in the long run everyone will do better business. Still, I’m grateful to have stocked up on many supplies before the dollar changed too much. A little thing like using paypal cuts the cost of currency conversion and some fees which add up over time. Some might think I could save by buying locally, but it is not always or often possible. Finding and using the most lightfast and highest quality products also means my work is worth more to collectors.

  • Donny Gamble October 28, 2008, 12:43 am

    A lower dollar actually benefits me because I can start increases my stock positions in the global and commodity markets.

  • Dividend Growth Investor October 28, 2008, 11:02 am

    Scott,

    I was refering to Canadian exporters and their canadian dollar revenues. Since commodities like oil are denominated in US currency. Then the 50% drop in US dollar terms in oil since july is offsett by the US dollars 20% gain against the canadian dollar.

    I do not think however that the US is bankrupt. Furthermore the current crisis shows you that the US dollar is still the safe haven currency during a market crisis..

  • Sam October 28, 2008, 12:40 pm

    When the Canadian dollar was flying high above the US, I converted much of my investment and cash over that I didn’t need right away.

    The US dollar has helped my long term investments, and holds very well in this down turn. The 25% appreciation has offset the market downturn of 30%.

    It will dampen my spending in the US, but it’s always been purely financial decision to buy in Canada vs US.

  • Telly October 28, 2008, 1:22 pm

    As you know FT, I commute to work in the US from Canada so I’ve received a 25% raise over the past 3 months. Not bad but then I still remember the days when I was getting a 60% raise!

    I’m not banking that it will keep up but it’s been a nice little bonus and good timing since we recently purchased a cottage.

  • Marie-Josée October 28, 2008, 3:58 pm

    Hello everyone,

    My name is Marie-Josée. I am a technical writer for the Montréal Exchange. MX is the Canadian options market (we also trade futures). This is my first visit on this blog and I find your comments on how a lower U.S. dollar affect you very interesting.

    I would like to suggest that you could trade options on the U.S. dollar to hedge your currency exposure. If you want to speculate, you could also trade call options to profit from a rise in the U.S. dollar.

    If you want to know more, we have a guide called Currency Options Reference Manual. It is available at http://www.m-x.ca/produits_options_devises_en.php.

  • Saving Money Tips October 29, 2008, 2:51 am

    For the past few months, my cheques that came from the states (various online ventures) were literally worth garbage. Well they were still cheques.

    But today I chased a cheque for $150USD and ended up getting $200. Our dollar may be low right no, but it feels good when you get more than what is printed on the cheque!

  • Dividend Growth Investor October 29, 2008, 11:06 am

    Actually If you would like to hedge your exposure you should definitely open an online forex account and use some sort of margin to lock in rates for a period of time. If you use options chances are you will be paying a premium for the option to purchase currency at a set price for a set period of time.

  • Novice October 31, 2008, 11:10 am

    @ Dividend – though I have no doubt you’re good at it, Forex seems to me the fastest way for a novice/goofball to lose their shirt. See debtkid.com

  • Chris November 1, 2008, 12:18 pm

    It’s good for me because I earn money in US dollars and live on the cheapy East Coast.

    Mmmmm. 25% pay increase.

    The Canadian dollar will go back up after the world economy approves and oil goes back up. I think it’ll go up to about $100/barrel and Canadian dollar will balance out within 5-10 cents of the US dollar.

  • Dividend Growth Investor November 1, 2008, 11:08 pm

    Novice,

    I am actually not a forex trader ( although I used to be an active short term trader on forex and fx futures markets a while ago) and the strategy I was refering to ( currency hedging) won’t result in you losing your shirt. On the contrary hedging of currencies or commodities is often used by companies in order to minimize the risk fluctuations in currencies and commodities on their bottom line.

    If you have US$100 and the US$ is trading at par with CDN$ then you could simply put some margin in an fx account and lock in that rate. No matter what happens in the future your rate is locked in and the worst thing that could happen is that you end up settling the position earlier than expected.

  • WealthWeek.com November 3, 2008, 10:32 pm

    Forex investing is risky, but with the right education, money management, psychology and expectation, you can make good returns.

    A strong USD has it’s advantages and drawbacks… Since the buying power of the CAD has decreased, investing in the states is less attractive (say, getting into some good real estate deals). Of course, this is just in general, but I would have to see real numbers to be certain. When the dollar was more at par, it was a great time to take advantage of those discount buys. Mind you, the forex market can assist in hedging the differences if it’s utilized correctly and safely (for investors who are more inclined towards risk).

    The advantage is that any USD income that comes in is now subject to a nice bonus due to the exchange rate.

  • Olgs December 1, 2008, 12:38 am

    In this volatile market where the dollar just seems to be on a constant decline, does anyone find they are changing their investing strategies. At what point to we just start eliminating the middle man, and venture into direct investing is this even a good idea?

  • Scott December 1, 2008, 11:20 am

    Middle-men are one of the non-productive drains of society (just my thoughts) but they do the “work” you would have to do yourself. Also, I’m not sure that every stock etc on the market has a direct investing option. Anyone have info about this?

    I would suggest figuring out the real cost/return of switching your “investment strategies” at this point. Would it REALLY be worth it (i.e. how much net % or $ would you really gain)? If yes, then go to it. If no, then just sit tight and wait for the US$ to plummet and the mighty Loonie to soar!

  • Joe December 6, 2008, 1:14 am

    For the last 12 months I have been struggling to send my US dollars to pay my Canadian mortgage and remodeling expenses. I just sold my house at a huge discount last week. Now that I will finally be able to exchange CD for USD I will be losing big time. Sometimes life just ain’t fair!
    Now, do I wait a few weeks in hopes that the CD will increase in value and if I do will the CD drop even more?

  • Rusty December 31, 2008, 3:51 pm

    I’m thinking of buying some Vanguard US Index ETFs, about $10K worth. Considering the poor exchange rate, I don’t know whether to buy in US funds now or hold off and keep the money in a CDN$ US Index fund through TD e-series. Any thoughts?

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