The Canadian Dollar is up. When do I get my cheap stuff?

Great Debates
1

If you don’t pay attention to currency markets, you probably wouldn’t be aware that the Canadian dollar has been on a bit of a tear against the US dollar of late reaching 91 cents earlier this week. It’s just about higher than any point than I’ve been alive. Some analysts are even predicting par with the greenback by the end of next year. One of the benefits that is often noted from this in newspaper articles is cheaper goods. OK, that sounds good, but when does that happen?

One thing that set this off for me is the announcement of the Simpsons Season 8 DVD set, which is priced here at MSRPs (which don’t reflect reality, but we’ll get to that) of $50 US and $70 Canadian, or a 40% exchange rate. Of course, they don’t actually sell for that, but compare the costs from amazon.ca and amazon.com for Season 7 - it’s even worse, a 57% exchange rate between the prices (it can be had cheaper at other stores, but that’s not really my point).

Other items have the same problem, take iPods
from BestBuy; 300 versus 379, or a 26% difference, not as bad, but not reflective of the actual value of the currencies. I could go on with cameras, gasoline (which I distinctly remember calculating as cheaper in Canada overall than in the US in the days of the 65-70 cent dollar), books (some on my desk, recently bought, have currency markups ranging from 30 to 50% over the US price), you name it. Of course I could buy a lot of these things for cheaper from the US sites even factoring in shipping, but that’s not the point. When does it start to get reflected in the prices here?

I realize that importing goods does carry a cost, but it’s not like we don’t manufacture anything here, or that a lot of these goods (especially electronics) aren’t imported into the US anyway, so the duties can’t be that different.
I also realize that a lot of these goods are already paid for at the previous exchange rates, but it’s been over a year since the US dollar bought $1.25 Canadian, and that video iPod didn’t even exist as a product yet.

I suspect a lot of it may have to do with those mystical “market forces” - we’ve gotten used to paying a certain price for certain things, and retailers see no need to drop the price just because they’ve been able to buy them for less. But dammit, my purchasing power’s gone up dramatically in North America, and I’d like it to be reflected! Is there anything else that I’m missing about this?

2

Pricing doesn’t really work that way. It’s not as simple as, “American dollar * exchange rate = Canadian price”.

Canada is a different market, and goods are priced at whatever the market clearing price happens to be. Now, the prices for many good do tend to track close to the exchange rate, for the simple reason of cross-border shopping if the disparity is too great. But many things can’t be cross-border shopped, either because it’s cost-prohibitive in terms of shipping or time, or because of regulations, tariffs, import fees, brokerage costs, etc. Plus, Canadian goods are often taxed at very different rates than are the same goods in America.

If the U.S. market was completely hidden from Canada, you’d find that prices on some goods would vary dramatically, reflecting the differences between Canadians and Americans. Americans might spend more on their houses and less on their cars. Canadians might be willing to spend more on some other product.

The car market is interesting - it’s very difficult to import a new car on your own, so very few Canadians do this. The result is that some cars vary wildly in price between Canada and the U.S. Take the Subaru WRX for example. The American price: $24,995. The Canadian price: $35,495. Based purely on exchange, the Canadian price should be about $27,500. There are few option differences between the cars, but nothing that amounts to more than $1000 or so.

So why the big difference? Because Subaru has decided that the Canadian market will pay $35,495, and the American market will pay $24,995. It may also be that there are Canadian regulations that made it more expensive to certify the vehicle in Canada, or that the lower number of sales makes the fixed cost of each model higher, so Subaru has to raise the price and accept lower sales.

3

Without disagreeing that the market-clearing price of various things can differ between Canada and the US, there’s a fair bit of profit-taking going on at a distribution level too. At least, that’s the way it looks from where I sit, observing things going on between my boss and his suppliers. Prices for American products do drop after swings in the exchange rate, but only after several months, and at only a fraction of the difference. The wheels of competition take a long time to have any effect. And yes, my boss does get some stuff direct from US suppliers, so this profit-taking on the part of the distributers is costing them some sales, so we should expect to see the prices ever-so-slowly creep more into line.

4

Have a look at almost any book published in the USA or Canada and there will be a price on the cover in both $US and $CDN. I did a random grab of 5 books and here is what I found:



Year	$US	$Cnd	%
1997	26.95	34.95	30%
2002	6.99	9.99	43%
2004	6.99	10.50	50%
2006	17.00	24.00	41%
2006	17.99	22.99	28%

The local news here in Edmonton reported that a (Canadian) customer went up to pay for his book, pulled out American currency and announced the he wanted to opt for the $US price. Much consternation among staff followed.

5

Damn. I should try that.

The last book I bought (yesterday) just has a single price listed. It is by a Canadian publisher, though.

I pay my web-hosting fees in US dollars. As a result of the relative motions of the Canadian and US dollars, they have been getting cheaper and cheaper from my viewpoint. I just have to decide whether that’s worth the NSA spying on my website. :slight_smile:

6

I go to the States almost every other week. If you need cheap stuff and you live in the Toronto area just let me know. :slight_smile:

7

I suspect that with our addiction to imported oil and cheap Wal*Mart crap (well, not me personally)and the resulting trade deficit, it’s more a case of the US dollar going down in value rather than the Canadian dollar rising in value. Hence I wouldn’t expect to see things becoming much cheaper north of the border.

It’s very discouraging. We’re all implicated in it, but I also think policies of the current government encourage and foster our trade and energy problems. I don’t suppose anyone in America would even think of visiting Europe now, unless they are either Donald Trump or willing to camp in youth hostels and eat one meal a day.

8

Judging from the 120-day graphs at this exchange rates site, the US dollar has indeed been falling over the last month or so, not only against the Canadian dollar but against some other currencies like the euro, the pound, and the yen. The Canadian dollar has also fallen somewhat against the euro and the pound.

If oil prices are in US dollars worldwide, does this mean that oil is effectively getting cheaper for the nations with the strengthening currencies? I’m not quite sure how that works.

9

Do you happen to go anywhere that has a Trader Joe’s?

10

Look a little bit longer term. The Canadian Dollar has lost slightly to the Euro over the past three months (been pretty flat, actually), but it was gaining strongly prior to that:
Against the Yen - Jan05: 84, now: 101, up 20%
Against the Pound - Jan05: .43, now: .48, up 12%
Against the Euro - Jan05: .62, now: .71, up 14%
-figures from the x-rates.com site

I’m not aware of any major currency the Loonie hasn’t been gaining on (which shouldn’t be a surprise, with govt budget surpluses, good economic performance, and the rising price of oil).