Tuesday, December 18, 2007

America on Sale for Canadians

The Canadian dollar is at about parity with the US dollar now after years of trading at a discount. The change has come rapidly; the Loony was trading at about 85 cents as recently as February of this year. The change in the currency value is impacting trade between the two countries. The article linked above is from The American and highlights the macro economic changes that will likely result from the rising Canadian currency:

When I was a kid growing up in Detroit, my mother once said that she loved to visit Canada, right across the river, because “everything there is on sale.” It certainly seemed that way when the Canadian dollar traded at a fraction of the value of the U.S. dollar.

Today, of course, the situation is reversed: the U.S. dollar has been declining against major currencies, while the Canadian dollar has been rising. Over time, this could transform the largest bilateral trading relationship in the world and bring major changes to the Canadian economy. It will also affect the United States, since supply chains in virtually every sector of the American economy cross the 49th parallel.

For decades, Canadian firms have relied on a low Canadian dollar to cover the gap in labor productivity with U.S. companies (who invest more heavily and often in automation) and to attract U.S. investment. The low Canadian dollar has helped Canadian commercial service firms to compete in the U.S. market and has lured millions of American tourists and convention visitors. But now, in sectors ranging from manufacturing to services, Canadian exporters are finding that the high dollar makes them more expensive for U.S. customers.

A more important impact for the immediate outlook for the US economy is highlighted in this article from the AP:

CHANDLER, Ariz. - Two hours after his flight landed in Phoenix, Calgary resident Doug Farley already was cruising the city's vast stuccoed suburbs in search of the one attraction Canadians cannot seem to get enough of these days: cheap homes.

There are thousands of them here: almost new, unoccupied and dropping in value. The mortgage meltdown, combined with a surging Canadian currency, has Farley — and many of his countrymen — dreaming of winter golf on grass that's always green.

"My dollar's the same as your dollar, finally," Farley said, grinning as he peered through a pool fence at a sparsely populated condominium complex in Chandler, a Phoenix suburb.

Surely there aren't enough Canadians to buy up all the inventory of homes in the US, but with the dollar also weak against the British pound, the Euro and the Brazilian Real, foreign buyers could certainly help to end the glut sooner than expected. I've been hearing from real estate professionals that traffic is picking up anyway and on Miami Beach the buyers are mostly Europeans and Latin Americans.

No comments: