Topic: OT…The rising Canadian Dollar

[Snowman]

This is a good read:

http://www.parl.gc.ca/37/2/parlbus/commbus/senate/com-e/fore-e/rep-e/rep06nov03- e.htm

I am of the opinion that a strong loonie vs. the US and other world currencies is a good thing…..especially during a prolonged global economic expansion. Like it or not you fancy-pants service industry types we are a resource based economy.
 
Commodity prices are rising and global inventories are low. This is being slightly off-set by our rising dollar as we now receive less for our products. The demand for resources is increasing and capital investment in this country is escalating. All areas are seeing this development not just the resource sector.
 
Chinese Government is in Sudbury visiting their soon to be new supply of Nickel and Copper. They are looking to get a piece of the tar sands also. The money will be pouring into this country. Are we at the threshold of a big expansion in this country? Will our limited human resources going to constrict this opportunity?. What is going to happen?

For an on topic thought…..what does this mean to the auto consumer and the manufacture in this country?

Fire away….

[Mdxtasy]

The capital investment you are talking about is directly due to the strong resource prices we are seeing.  Oil at $50/bbl and natural gas moving up as winter hits etc.  Whils a strong dollar is a good signal of a strong economy, it also means that now our country is a less attractive investment option for foreign companies.  The surging dollar will have investors think twice about putting a factory in Canada and think about alternatives.

Auto consumers in my opinion, may suffer because the surging dollar signals strong economic growth and rising inflation.  Combined this with increased heating and operating costs of homes and cars, typical families will have less disposable income in purchasing fancy cars and other luxury goods.  

[Snowman]

I disagree MD. For industries in Canada looking to expand their operations the Canadian dollar now has increased purchasing power. 80% of Canadian machinery and equipment is imported and lower prices would stimulate investment. New and modern equipment will increase productivity and make Canada more competitive on the global market.

[wing]

Good for Canadian Companies bad for foreign ones.

Labour is cheap here, but if our Dollar is stronger then it is not.  My company works in Euro's so CDN is cheap compared to USD.  If it flip flops, our operations would move to south of the border.

[Chris]

Not so quick amigos.  
If we're talking export, many (most?) commodities and even finished product are sold in US dollars.  So what we end up with is:
- cheap(er) imports  
- less Canadian cash received for our exports
- higher cost basis for our 'value added' products - ie less competitive in world markets

In my opinion, a cheaper loonie helps Canadian companies overcome the ultra cheap labour from other parts of the world to stay competitive.

[Mdxtasy]

I was referring to foreign companies thinking about investing in a factory or something in Canada.  With the Canadian dollar going upwards, a US company's US dollar doesn't go as far here as it would in say...Mexico.  With global companies selling worldwide, it's not as important where something is manufacturered thesedays.  

Industries in Canada will benefit like you said, but if foreign investors stay away....new capital won't be injected into our economy.

[ovr50]

There are obviously pluses/minuses to a stronger Cdn. dollar vis-a-vis the US particularly, given about 80% plus of our trade is with them. The negatives include the fact that our natural resources are now more expensive to US buyers - this is a major negative. Many forest cos in BC were kept alive in the past due mainly to the weak Cdn. loonie. Another negative is our labor costs are now higher; thus we are less competitive overall. Positives include the fact that our loonie buys more of anything imported from the US and other nations. Will this make cars cheaper to us? Hard to say as there are so many cross-border deals now; but, in theory, it should make them less pricey. Travel outside Canada for us will be cheaper; but our own travel industry will be hurt as the US dollar buys less than it used to in Canada.  
Overall, from the bigger-picture economy of the nation, I think a weaker dollar is better. I'm no expert here on this - Dah...

[S60]

High CAD $ = lost jobs in Canada to other countries with lower wages and production costs.
Many companies are moving jobs to India and China
because of the high costs in Canada.Manufacturing and communication companies in Canada are hurting big time because of the high CAD$.Canadian companies that have had branch offices in places such as London UK,etc are moving these offices to Bombay or other countries with cheaper work forces.
This can't be good for Canada

[Mdxtasy]

That's what I'm saying....foreign investors don't like a high dollar.  

I doubt the higher dollar will translate into lower vehicle prices....it just means the dealer will rake in the exchange rate benefits.

[ovr50]

No, Mdx, not the dealer, the maker will get the exchange gains.

[inco]

Low dollar = good economy.

High dollar = good vacation.

Let's hear it for my vacation fund. Yeah Inco

[S60]

High dollar bad economy = no money left for good vacation, unless you are retired :-)

[Mdxtasy]

Dealer pays $22K CDN for car when dollar worth $0.72....sells for 25K CDN when dollar hits $0.79.  Dealer keeps the extra $0.07 the dollar is worth.  Either way...it's not the consumer that's going to get a deal.  

Yeah Inco...good for you....bugger.    My last vacation was my cruise to the islands....won't be going anywhere exotic for a long time....

[Snowman]

Canadians have become so accustomed to the idea that they just don't measure up.  Relying on the low dollar crutch will not improve our life style and we will continue to slide down the ladder. The sedating effects of the low dollar make us lazy and unproductive. Increasing productivity to match the levels south of the border will elevate our standard of living. The average Canadian's personal disposable income was about 70% that of the average American's last year.

In the late 60’s and early 70’s our dollar was 1.10 US. Did Canada collapse?.....no, our economy was strong and we productive. Paul Martin will have our dollar at +0.90 within the next 18-24 months. He is a businessman fiscally responsible thinking and policies. The next 3 years in Canada will be very interesting as we dig ourselves out of this hole.

[S60]

But the dynamics are a whole lot different now then in the 60s.How can you compare our market to the USA, with our small population base, our different tax laws, and our attitudes of spending
our $s.We are not so free wheeling with spending,
and we are much more conservative with taking risks,then our southern neighbour.
We are much more conservative in all these areas.
Already Canadians have slowed there spending habits, with the higher oil prices.Without consumer confidence in Canada, we are guaranteed a downward trend in the economy, because we stop buying.

[Snowman]

Yes S60….everything has changed…..and will continue to change. I think we are moving in the right direction. Consumers will gain confidence as they see their purchasing power increase with the rising dollar. As time progresses and the economy expands with the higher value we will become more comfortable and domestic consuming will increase.

Canada is the only country in the Group of Seven rich industrialized nations that is still running a budget surplus. In the past two years, Canada's economy had grown despite its heavy dependence on trade with the United States. Any recovery south of the border can give Canada a new boost at a time when it has faced multiple problems. SARS, Mad Cow, Blackouts, and trading disputes with the US have not caused the collapse of our economy. Working smarter will pay dividends in the long run…..the low dollar contingency factor will make us lazy.

[S60]

I hope you are right Snowy.I just fear this trend of jobs moving out of Canada to low wage countries,and how we will deal with the consequences of unemployed with no spending power.

[Drivesideways]

I agree with you Snowman.  IMHO, the low dollar is a disincentive for Canadian industry to be serious about improving productivity to be at a par with the US and Asia.  There is no sense of urgency to look at the resources, products and services we offer to our selves and the world with an eye to removing waste, improving quality and reducing lead times.  That's our best hedge against inflation and currency fluctuations.  Keeping currencies artificially low when your economy is seen by the world to be relatively strong is not a sustainable strategy.  Again, IMH(uninformed)O.

[ovr50]

Mdx - not wishing to quibble but I don't think the dealer pays the mfger for the car until it sells ie. floor finance paper is in place up to sale date, dealer just pays interest on the total of the cars sitting on his lot. So, the dealer does not get a "quick win" on exchange. Regardless, the consumer will not see the difference, we all know that.  
Snowy - I see your point but still think that Canada is better off with a weaker dollar (except for vacations and buying imports). I don't think the general citizen will work harder and be more competitive just because the Cdn. loonie is stronger against the US $. Natural resourse jobs will slow down UNLESS we are one of the only providers eg. natural gas and oil.  
DSW - one could agrue (and the US trade reps do) that the Japanese govt. has kept the Yen artificially low against the US dollar in order to sell Japanese products more competitively in the US, mainly cars/trucks. If that's the case, it has worked pretty well for the Japanese over the past decade.  

(Message edited by ovr50 on October 01, 2004)

[Mdxtasy]

Quibble quibble.  

I agree with you Ovr on the other points about our dollar.