A Lower Dollar – How Does it Affect You?

With the Canadian Dollar at 4 year lows relative to the U.S Dollar, it seems like just a few months ago where the Canadian dollar was at par with the U.S Dollar.  Oh wait, that was a few months ago!  Since the middle of July, the loonie has dropped more than 27 cents (as of 10/24/08) and it’s possible that it could go further in the short term.  What’s really impressive about the surge is that most of the move has been in the month of October.

To some, a fluctuating currency doesn’t make a big difference in day to day life.  However to others, it’s the difference between being employed or not as it can have profound influence on currency dependent industries.

What does a lower dollar affect you?

  • Those who are paid in USD will get an extra boost in their income.
  • It is more expensive to buy U.S items and more expensive to travel to the U.S.
  • Canadian exports will increase, thus increasing manufacturing jobs in Canada.
  • Canada will be a cheaper travel destination, thus increasing the tourism industry.
  • It is now more expensive to buy U.S stocks if you need to do a currency conversion at todays rates.

To add to this discussion, there are some economists that predict that the Canadian dollar will bounce back soon as the buying of the U.S greenback due to short covering will decrease significantly.

For those who agree with the economist prediction of a Canadian dollar quick recovery, Horizon BetaPro has an ETF that covers the USD bull/bear – HDU and HDD.  Note that currency trading is extremely risky and is something that I personally stay away from.

Question for you, how has the lower Canadian dollar affected you financially?

I've Completed My Million Dollar Journey. Let Me Guide You Through Yours!

Sign up below to get a copy of our free eBook: Can I Retire Yet?

Posted in
Frugal Trader

FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
Subscribe
Notify of

This site uses Akismet to reduce spam. Learn how your comment data is processed.

24 Comments
Newest
Oldest
Inline Feedbacks
View all comments
Rusty
12 years ago

I’m thinking of buying some Vanguard US Index ETFs, about $10K worth. Considering the poor exchange rate, I don’t know whether to buy in US funds now or hold off and keep the money in a CDN$ US Index fund through TD e-series. Any thoughts?

Joe
12 years ago

For the last 12 months I have been struggling to send my US dollars to pay my Canadian mortgage and remodeling expenses. I just sold my house at a huge discount last week. Now that I will finally be able to exchange CD for USD I will be losing big time. Sometimes life just ain’t fair!
Now, do I wait a few weeks in hopes that the CD will increase in value and if I do will the CD drop even more?

Scott
12 years ago

Middle-men are one of the non-productive drains of society (just my thoughts) but they do the “work” you would have to do yourself. Also, I’m not sure that every stock etc on the market has a direct investing option. Anyone have info about this?

I would suggest figuring out the real cost/return of switching your “investment strategies” at this point. Would it REALLY be worth it (i.e. how much net % or $ would you really gain)? If yes, then go to it. If no, then just sit tight and wait for the US$ to plummet and the mighty Loonie to soar!

Olgs
12 years ago

In this volatile market where the dollar just seems to be on a constant decline, does anyone find they are changing their investing strategies. At what point to we just start eliminating the middle man, and venture into direct investing is this even a good idea?

WealthWeek.com
12 years ago

Forex investing is risky, but with the right education, money management, psychology and expectation, you can make good returns.

A strong USD has it’s advantages and drawbacks… Since the buying power of the CAD has decreased, investing in the states is less attractive (say, getting into some good real estate deals). Of course, this is just in general, but I would have to see real numbers to be certain. When the dollar was more at par, it was a great time to take advantage of those discount buys. Mind you, the forex market can assist in hedging the differences if it’s utilized correctly and safely (for investors who are more inclined towards risk).

The advantage is that any USD income that comes in is now subject to a nice bonus due to the exchange rate.

Dividend Growth Investor
12 years ago

Novice,

I am actually not a forex trader ( although I used to be an active short term trader on forex and fx futures markets a while ago) and the strategy I was refering to ( currency hedging) won’t result in you losing your shirt. On the contrary hedging of currencies or commodities is often used by companies in order to minimize the risk fluctuations in currencies and commodities on their bottom line.

If you have US$100 and the US$ is trading at par with CDN$ then you could simply put some margin in an fx account and lock in that rate. No matter what happens in the future your rate is locked in and the worst thing that could happen is that you end up settling the position earlier than expected.

Chris
12 years ago

It’s good for me because I earn money in US dollars and live on the cheapy East Coast.

Mmmmm. 25% pay increase.

The Canadian dollar will go back up after the world economy approves and oil goes back up. I think it’ll go up to about $100/barrel and Canadian dollar will balance out within 5-10 cents of the US dollar.

Novice
12 years ago

@ Dividend – though I have no doubt you’re good at it, Forex seems to me the fastest way for a novice/goofball to lose their shirt. See debtkid.com

Dividend Growth Investor
12 years ago

Actually If you would like to hedge your exposure you should definitely open an online forex account and use some sort of margin to lock in rates for a period of time. If you use options chances are you will be paying a premium for the option to purchase currency at a set price for a set period of time.

Saving Money Tips
12 years ago

For the past few months, my cheques that came from the states (various online ventures) were literally worth garbage. Well they were still cheques.

But today I chased a cheque for $150USD and ended up getting $200. Our dollar may be low right no, but it feels good when you get more than what is printed on the cheque!