The US Dollar vs. The Canadian Dollar: A Tear Falls from my Eye

usd vs. can dollar - september 2007As someone who lives in Canada but makes most of his money in American dollars, the frantic rise of the Canadian dollar vs. the American dollar has been particularly painful. Rewind to about 1999, and there was a day when I went to the bank and they bought American dollars from me at 1.59. Now, if I walked into the bank today, I would get 0.985 Canadian dollars for each US dollar. That's a 60% difference for every dollar. Add that up over the course of a year, and that is a lot of money being left on the table.

What caused this? A great number of reasons. It's as much the strength of the Canadian dollar as it is the weakness in the US dollar. War in Iraq. Strong oil prices for an oil rich nation. Strong commodity prices. A strong Canadian economy. A strong Canadian balance sheet. An American economy in turmoil. A horrendous US balance sheet. All of these things combine to make a strong Canadian dollar versus a weak US dollar.

It isn't just a Canadian phenomenon though. Look at the Euro versus the USD. Look at the Aussie dollar. The American dollar has gone into the tank.

How long until we start to see substantial changes? If you buy a book in the bookstore, you will automatically pay 50% more if you live in Canada than if you live in the US, even though the Canadian dollar is stronger now. Automobiles cost more in Canada. What's to stop people from driving across the border and paying $10,000 less for a car in the States and then importing it across the border? The answer. Nothing.

In the end, Canadians shouldn't crow too loudly about the strong Canadian dollar. You can thank an American dollar that has gone into the tank and strong commodity prices for that.

Filed under: General Knowledge

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