Strong CAD hurting Canada

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The Canadian dollar has been above par┬áversus the U.S. dollar for virtually all of January so far. The CAD has been within $0.10 of the USD for about 1.5 years now. With this in mind, it is no surprise that Canadians are finding it tougher to compete globally. The Bank of Canada said this week that Canada’s economy will grow more slowly than the U.S.’ It also said that Canadian productivity is lagging and needs to increase in order to compete better globally. In addition, manufacturing in Canada has been hurting for some time now.

Do you see a correlation between this bad news for Canada’s economy and the strong CAD? You should, because the two are directly correlated. When the Canadian dollar began appreciating versus the USD, some Canadians were happy and saw it as a sign of strength that made them proud to be Canadian. This thinking was and is completely flawed and ignorant. The only thing that matters when looking at which currency is strong and which is weak is how it affects that country’s economy. In Canada’s case, a strong CAD is a BAD thing. The Canadian dollar needs to drop about $0.25 or more and stay that way for the Canadian economy to improve substantially.

If we had a CAD at around $0.75 USD, then our exports to the U.S. would increase to where they should be. Manufacturing in Canada would see a healthy increase which would allow more people to spend more money within Canada. It would also make Canada a better choice for customers in Europe and other international markets as well. The Bank of Canada needs to look at ways to reduce the value of the CAD while not angering other nations. They cannot do this in a way that appears unnatural or unfair (See China), but they do need to take measures to bring the CAD from the $1.00 USD it is today to something around $0.75 USD where it belongs.