Monday, October 15, 2007

Canadian Dollar Will Reach US$1.05 by 2008

CIBC World Markets predicts that the Canadian buck will be worth $1.05 U.S. by the end of 2008, representing the biggest premium since 1960.

"The loonie's flight is far from over," said Jeff Rubin, Chief Economist and Chief Strategist at CIBC World Markets. "By the end of next year, you'll get as much as a nickel back when you trade your loonies for greenbacks."

Last month, Lee Distad gave readers a piece of his mind on this blog about the disparity between retail pricing in the U.S. and Canada on consumer goods. In short, he argued that contracts were signed months, maybe even a year ago, and to change pricing now to work in line with the current exchange rate would leave Canadian retailers feeling the pain. With the rise in Internet sales over the last few years, will they be feeling the pain anyway? After all, as it stands, I can buy product X at a Canadian store for $20.00; or purchase it online from a U.S. retailer for something like $18.00, plus shipping and handling. As the gap between the Canadian and U.S. dollar begins to widen, it will eventually make purchasing from across the border even more enticing.

Of course that doesn't hold true for all products and in all situations: in many cases, the after-sales service, and peace-of-mind that you're dealing with a retail outlet around the corner from your home is worth the extra few bucks you could end up paying in Canada. Plus, sometimes waiting for a product to be shipped isn't something the customer's willing to deal with. But we have to be honest: in some situations, the U.S. might be seeing more Canadian dollars than we would like them to.

Distad was correct in predicting that this holiday shopping season will see a price war like no other: but Canadian retailers won't only be competing with one another for Canadian consumers' bucks: they'll also be competing with our neighbours to the south, through things like across-the-border and Internet shopping, in a way they haven't had to deal with in years.

On a related note, Rubin adds that the rise of the Canadian dollar over the U.S. is due largely in part to the shift in "global terms of trade over the last decade, which has seen economic value-added migrate from information technology back to resource rents under the ground." Such shifts are obvious when looking at countries like Dubai, which has raised its profile over the past few years with modern and futuristic real-estate projects like man-made islands and indoor ski hills, and has attracted the attention of corporations from all other world, which have since set up shop in the country's financial district.

It will be interesting to see how the countries of the world are positioned 20, and even 10 years from now.

1 comment:

Lee_D said...

Thanks, Christine.

I wanted to retread a little, based on comments left by readers who believed that I was exonerating retailers from offering fair prices, and putting the economic onus on consumers.

I simplified and glossed over many factors that lead to why goods are sold at a certain price to keep my blog post short and to the point. I can certainly think of situations where retailers have charged extraordinary markups, and I don't want to be seen as an apologist for shady retailers.

That said, a lot of the carping that centers on price comes from not understanding where those prices come from. You can't escape the fact that Canadian dealers buy far fewer goods than American dealers, and thus their costs will still be higher, even in the face of a strong dollar.

In the last week, I've seen and heard waves of radio and print ads for furniture, tire, and other retailers that are now playing on the US$/CAD$ parity as a reason for offering the customer a deal. It was inevitable, and that's the market in action. Competition between retailers is certainly better than government enforced price controls, no?

Christine is right on when she says that this Christmas will be a cut throat season, and I don't think I have to be Nostradamus to say that I think cross-border shopping will reach an all time high, and Canadian retailers who can't compete will feel the heat.