Since November 1976, more than 30 years ago, the US dollar and the Canadian dollar have never been equal. Over the years, Canada's economy has gotten better, while the US economy seems to have gotten worse because of all the trouble. The war in Iraq hasn't helped the US economy, but it has helped balance out the deficit. To avoid the recession that was expected because of the credit crunch, the Feds cut interest rates by 0.5 points to 4.75 percent.
By lowering interest rates to help the mortgage industry, the US dollar has become weaker against other currencies, such as the Euro. This has made it easier for the Canadian dollar to reach the same value as the US dollar. You can now buy one Canadian dollar with one US dollar. But the Canadian dollar's rise isn't just because the US government cut interest rates. It's also because the Canadian economy has been growing since 2006, thanks to low inflation and a booming oil industry.
Some Canadians are surprised by how quickly the Canadian dollar is rising against the US dollar. Only four years ago, in 2002, the Canadian dollar was worth.62 USD, so getting to par seems too good to be true.
Jeff Rubin, chief economist and strategist at CIBC World Markets, said, "The Canadian economy, which used to be the quiet little resource backwater of the North American economy, is quickly turning the tables on its big brother."
So, what does this all have to do with how Canada and the US deal with each other? Well, first of all, there will be a rise in American exports because it will be cheaper for Canadians to buy from American markets. On the other hand, American exports to Canada will go down because it will cost more for Americans to buy goods made in Canada.
The dollar parity will also hurt the Canadian tourism industry because fewer Americans will come to shop in Canada. This is because Americans will no longer be able to save up to 40% on a single purchase because of the dollar value.
Even though sales will go down for Canadians, they will benefit from buying from American businesses, and some Canadians are becoming more interested in buying cars on the American side. Since car prices in Canada are much higher than in the U.S., many Canadians will save a lot of money by going to the U.S. to buy a car. The price difference may not be huge for all cars, but a Canadian buyer will save almost $14,000 on average when buying a luxury sports car.
But the high loonie will put pressure on Canadian companies that depend on exporting to the US, which is also Canada's biggest trading partner. Already in 2006, the rising Canadian dollar against the US dollar cost almost 100,000 jobs in southeastern Ontario.
Even though so many jobs have been lost, the Canadian economy is still doing well. Even though the manufacturing sector has lost a total of 289, 000 jobs since 2002, the Canadian economy has created over a million jobs in the resources, construction, services, health care, education, and financial industries, bringing the national unemployment rate to its lowest level in 30 years.
On the other hand, the Canadian dollar seems to be stronger than the American dollar for now. Only time will tell how the American dollar will do against the Canadian dollar in the future. If you ask me to make a prediction, I can't say for sure, but future interest rate cuts in the US could make the US dollar weaker against the Canadian dollar, and this could happen in the next 6–12 months.
