Canadian dollar to stay around par with US dollar

Strong Loonie

The Canadian dollar has been hovering close to par with the US dollar for some time now and many experts are saying that it will continue for the foreseeable future. There are even growing thoughts that it will surpass the US dollar and might reach levels of $1.15-$1.20 USD for every Canadian dollar. If it does reach that figure, then it will not be very long until it comes closer to the even mark. This has been affecting Canadian and American businesses and consumers quite a bit in some cases and it is unknown how sustainable this is for the longer term, especially for Canadians.

Many Canadian businesses rely very heavily on exports to the United States and a strong Canadian dollar makes their products and services more expenses to Americans. If they don’t change their pricing then it means that when they convert those US dollars back to Canadian, they will have earned less than they would like. It also affects Canadian companies that deal internationally (that is, outside the US and Canada) because more than likely the currency used in that case is the US dollar and that means those companies will be earning less than they have in the past.

American businesses that export their products to Canada stand to gain from a strong Canadian dollar because now their products are less expensive for Canadians to buy. However, there is a lot more business going from Canada to the US than the other way around due to the population size difference. However, any US based retail business along the Canadian border has been seeing a steady flow of Canadian shoppers and once the dollars are at equal value, let alone a Canadian dollar that is stronger than the greenback, those stores will have to bring extra stock to keep up with the mobs of Canadian shoppers.

Canadian businesses have had some time to adjust to the exchange rate being as it is but, in some cases adjusting is very difficult to do. For large companies, they can use currency futures which basically give them a known range that the dollar can increase by (like insurance but for currency), but for small businesses this is not a very common solution. The best way for existing businesses to adjust is to simply accept smaller margins and budget their expenses and costs accordingly. If possible, growing the business more within Canada will help keep margins high but if that was an option, then business likely would have already exhausted it by now.

As long as oil prices stay strong, the Canadian dollar is likely to remain that way as well, since a sizeable amount of the Canadian currency is directly related to the price of oil. I still believe that as a whole, Canada is better off having a weaker dollar than the US, somewhere around $.68-$.75 sounds about right, but for that to happen oil prices need to decline and the US economy needs to rebound at a quicker pace than it has thus far.

There is one other way that can bring the Canadian dollar down a little from its current levels. If China lets their currency, the Yuan rise from its artificially low and fixed rate (fixed to the US dollar, that is) then that will improve the US balance sheet instantaneously. Once that occurs, the US economy will look stronger and that will strengthen the USD versus all other currencies, including the Canadian dollar. That alone will probably not bring the Canadian dollar to the $.68-$.75 rate I would like, but it sure would help.