How Low Can the Dollar Go… And How Will It Affect You?

Lower Canadian Dollar

When my wife and I bought our current car, we purchased it from a used car dealership in the United States. The larger variety of makes and models available, and a very competitive marketplace meant that even with the hassle of bringing it across the border, and paying import duties and GST, we still saved several thousand dollars versus buying the same model here at home.

The icing on the cake was at the time – December 2007 – was one of the few times in my life that the Canadian dollar was worth more than the U.S. greenback, trading at about $1.07. With the dollar now poised to drop below 80 cents in U.S. value, we certainly won’t be looking south to buy a replacement vehicle any time soon.

History Repeats Itself

Those of you who grew up in the 1980s or later may be surprised to learn that the Canadian dollar didn’t always lag behind U.S. currency in value. Back in the 1950s, the dollar peaked at $1.04 U.S. and, again, in 1974 it hit a then record of $1.06. But, after the Parti Quebecois won the Quebec provincial election in 1976 and a faltering global economy, lead by the OPEC oil crisis, the dollar went into freefall hitting a low of 69 cents in 1986, rebounding slightly before dropping to an all-time low of 62 cents in 2002.

There a number of factors that influence the value of a country’s currency, including economic output and political stability. The Canadian dollar has been close to par with the U.S. dollar for the better part of a decade in large part because of the latter’s faltering economy. With U.S. house prices and privately owned banks collapsing, our stable banking system made our currency seem like a wise investment.

With much of our recent economic success riding on a booming oil industry, the decline in oil prices lead the Bank of Canada to make a surprising rate cut in mid-January to help stabilize the economy. CIBC World Markets’ experts predict that the bank will make another 0.25 per cent cut to the overnight lending rate and, as a result, project that the Canadian dollar will drop to 77 cents.

How Will the Lower Dollar Affect Me?

While a low Canadian dollar is generally seen as a good thing for business exporting products to the U.S., most Canadians will notice that it costs them more to buy the things they want.

Canadian readers have long been accustomed to paying higher prices for the exact same books and magazines as readers in the U.S. do, but now that trend is reaching the iPad generation. In early January, Apple announced that it was raising the base price on apps sold in the App Store from 99 cents to $1.19 CDN. The cost of iPhones and iPads is also expected to rise.

As hard as it may seem, we could probably live without our devices. But we can’t live without food. And the cost of that is rising too. In it’s annual Food Price Report, the University of Guelph’s Food Institute projected that the cost of food will rise between 0.3 per cent and 2.4 per cent in 2015. One factor cited in the increased cost of fruit and vegetables is the low dollar, since many of those products are imported from the U.S., particularly in the winter months.

Clothing is another necessity that will cost more this year. We all love to hunt for deals at the big U.S. chains, but you’re more likely to find the best deals south of the border. Maclean’s magazine wrote a piece in December showing that while the national inflation rate dropped in November 2014, the cost of clothing and shoes actually rose. The poor exchange rate will only exacerbate that.

If there’s a silver lining to all this, at least the drop in oil prices that precipitated all this means it’s cheaper for me to fill my gas tank.

Are you concerned about the current state of the Canadian dollar? Let us know in a comment, or visit us on Facebook and Twitter.

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