Why is the Canadian dollar so terrible? | About That

the Canadian dollar is now at its lowest point since Peak pandemic before that the last time it fell below 72 cents us was almost a decade ago and everyone we spoke to expects it still got further to fall we've seen the losses uh essentially accelerate uh in recent weeks we are kind of expecting move to like 69 cents in the next 3 to six months Canadians will feel that in their pocket now look maybe you're thinking I have no plans to travel to the US why do I care but even if you never leave your

neighborhood the exchange rate absolutely affects you so let's go through how starting with how the dollar fell so low in the first place there are a few things that go into how the value of a currency is determined but at its core it's about supply and demand if people or businesses around the world want to buy products stocks or real estate from a country they typically need that country's currency to do so that increas es demand for the currency and can drive up its value the exchange rate is the price of one currency in terms

of another and so if you need us currency that's going to drive up the value of the US dollar which means then relatively speaking the Canadian dollar is going to weaken generally there are two big selling features that make investors want to put their money into one country over another one is if they believe that country's economic Outlook is trending in the right direction if the American econom is doing well you might buy American stocks right and right now there's a pretty big difference between the Canadian and American economies one of the Stark divergences we

see in Canada versus the US is number one the economies are moving in two different ways for example the unemployment rate in the US is about 4% in Canada it's been creeping up now at 6.5% GDP growth last quarter was close to 3% in the US in Canada it was around 1% and the debt to income ratio in the United States that's how much of your gross monthly income goes to paying debt is around 100% in Canada it's 180% yes that means more debt than income you get the point economy is unequal but the other

big reason investors might want to put money into a particular country is when it's got high interest rates if like an international investor has money to invest in either Canada or us all else equal they'll gravitate to where the interest is higher because they earn more and so that's unquestionably at this point in the United States Canada has been cutting rates over and over again since the summer trying to Kickstart a stalling economy meanwhile in the US with a much stronger economy their rates haven't moved as much so far they've only cut three4 of a

percentage point off their policy rate to Canada's one and a quarter percentage Point well we don't have to move in lock step with each other we tend to but on this particular occasion we haven't now there were signs that the US was going to start cutting interest rates more more aggressively too which would in theory help take some pressure off the Canadian dollar but just a few weeks ago the entire economic landscape changed president-elect Donald Trump has a very different economic plan than Joe Biden he's promised to slash taxes deregulate boost spending and put in

some pretty hefty tariffs all of that has markets predicting a boost in growth the Market's reaction to Trump's victory has been pretty dramatic the Looney like just about every other currency was down against the US dollar what his platform was is very nationalistic progrowth Pro us growth and so that's the type of thing then that's going to make people want to put their money into US shares and into US Investments and so in order to do that you need US currency and this new reality prompted the head of the Federal Reserve to signal that us

interest rates may stay higher for longer than anticipated meaning that gap between Canadian and American interest rates is now expected to widen even more sending the Canadian dollar even lower the US dollar is uniquely strong right now because just two months ago we were pricing in Rapid us rate cuts and now the market has turned around and said maybe they'll only cut you know a half point three quarters of a point over the next year whereas Canada might cut by a half Point next month all of that uh is accelerating what we're seeing in the

in the currency markets and helping to drive the Looney lower if you're a Canadian planning to travel to the us over the next little while you are certainly going to feel the pinch say for example you're budgeting $200 Canadian a night for a hotel at 71 cents on the dollar that's only $142 us which could be the difference between a three star hotel and a two star hotel so you can imagine at least some Canadians are thinking twice about their trips down south this winter there's an entire set of the population that does not hang

around in Canada during the winter they might find that it's a lot more difficult to go to the US going to visit a major US city or going to Florida in the winter is just going to be painfully expensive but a weak Canadian dollar can also have much bigger impacts at home impacts that are also much trickier to avoid so anybody walking around with an iPhone right now or anybody who's buying fruits and vegetables at the local grocery storees probably importing it from the US next time you buy a book in Canada take a look

at the back and often the price you'll see is in both Canadian and US Dollars it's pretty good reminder of just how much more Canadians pay for the exact same product my producer bought this book a few years ago when the dollar was in a better place there's about a 26% difference between the US and Canadian prices but if you bought a brand new book published today with the Canadian dollar at about 71 cents us you could be paying around 40% more now extrapolate that out to everything Canada imports from the US which is hundreds

of billions of dollars worth of goods each year and you can start to see how hard it becomes to escape the impact so you could find that all of a sudden the food prices technology prices or anything that you're buying from the US has now gone up in Canadian doar terms but it's the impact on businesses especially smaller businesses that worries the economists that we spoke to most say your family runs a corner store in Hamilton and a few years ago you budgeted around $5 a pint to import California strawberries but as the Dollar's gotten

weaker and weaker you're now paying the equivalent of about $6 a pint so what do you do well you could pass the extra cost on to the consumer by raising prices the problem with that is if you jack up your prices you could risk losing your customers to big box grossers like blob Blas or soes because those big box grossers can usually prepare for these kinds of fluctuations they've got bigger supply networks so maybe they import from Chile instead of California they're also able to negotiate set prices for produ sometimes a full year out so

they can often keep the price of their strawberries relatively steady if you're smaller and you're more local you are kind of at the whim of all the things that you can't control you can't hedge so depending on how long this lasts it it really could do some damage especially to smaller Canadian businesses that are very reliant on uh American inputs inputs meaning every from the Machinery a business uses to the parts that they're sourcing to the staff that they hire so just think about all the North American sports leagues that have a team in Canada

all of their revenue from ticket sales sponsorships broadcast rights they get all of that in Canadian dollars but they pay their athletes in American dollars when the Canadian dollar gets weaker relative to the US those players salaries can feel a lot more expensive now teams also use the same kinds of hedging strategies that those big box grocery stores do but it's still a challenge that they have to work around in fact if you look back three decades ago when the dollar fell to around the same value that it is now even slightly lower actually Canada

lost the Quebec nordiques to Denver Colorado and a year later the Winnipeg Jets left too Winnipeg may have tradition on its side but Phoenix is something else it has money now to be clear there's a long list of reasons why these teams left but both owners cited the low Canadian dollar as one of them sometimes Canadian businesses just the best way to avoid this problem is to leave entirely and here's the real kicker what happens over time when things become more and more expensive a weaker Canadian dollar means you import more inflation that's right inflation

something we're already starting to see sneaking its way back into our lives Canadians having just gotten over inflation starting to reckon with cost of living affordability issues might find that these things start to creep back again it might actually Force the Bank of Canada to slow down the interest rate Cuts pause the interest rate Cuts or worst case scenario even start increasing interest rates again to try and keep inflation from rearing its head [Music] again so we talked about how Canadians might want to start postponing their American road trips well the flip side is also

true if you're an American it's a great time come to Canada how many Americans are now going to look at b or monton Blan or the Atlantic Canadian provinces and say man I always wanted to travel there now is a great time to do it because my American money is going to travel really far in Canada this applies to some Industries too so say you're a production company looking to shoot a romcom in a quiet mountain town and you're trying to cut down on your production fees like hotels meals car rentals Canada starts looking pretty

attractive and more Travelers More film crews that's great news for local economies there's a number of areas where it would benefit in regards to increasing the income and growth that comes into Canada the same logic also applies to anything made in Canada that's sold to the US at Canadian prices with a low Canadian dollar important Canadian products like oil Auto Parts Lumber they also become cheaper and more attractive to Americans So in theory exports could grow so you have your car manufact factures your steel a lot of heavy manufacturing if you're a US company looking

to buy Goods all of a sudden you'll look more at Canada now because it's cheaper for you to do but here's the thing if Trump follows through on his promise to put a 10% tariff on International Goods Canadian products will suddenly become a lot more expensive which could completely cancel out the benefits of a lower Dollar in fact according to economists at TD we could actually see a net 5% red reduction in Canadian exports to the US in the next couple of years if any country in North America is tariff or negotiated or carved out

of the US supply chain you are sensely losing access to one of the world's most productive and efficient and biggest markets it's a bit of a moment when it's the worst of Both Worlds for Canada with a weaker currency and so you know currency Traders are taking a much more skeptical view on where the Canadian dollar is going now every everyone we spoke to said maybe the most concerning thing about a Canadian dollar that struggles against the US dollar is what it says about Canada it's a lack of confidence so the prospect of falling even

further below 70 cents us as many are predicting it could be an issue