WORK-LIFE BALANCE / MAR. 24, 2014
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Dropping Loonie: What Does It Mean For Canadians?

When one thinks of Canada, certain thoughts may come to mind. In Canada; they love hockey, their winters are cold, they drink a lot of beer and they say 'EH' and 'aboot'. All of these are actually fairly accurate. With that being said, they don't eat moose cooked in maple syrup and they haven't all seen a polar bear.

Canadian currency tends to reflect some of the things that are important to Canada. Displaying anything from a beaver to a caribou on their coins. Their version of an American one-dollar bill or a one-pound coin, is the loonie. The loonie is a Canadian, gold-coloured, one-dollar coin. On one side it has a loon; which is a bird that is very popular throughout Canada (especially in cottage country). The other side is Queen Elizabeth II. The value of a Canadian dollar is in relation to the American dollar. Canada's mostly concerned with its currency against the US currency; this is due to the import/export relationship the two countries have. Therefore, as the US dollar strengthens, the Canadian dollar weakens. This has been slowly occurring.   

The loonie has continued to drop; hitting it's lowest value in years. The drop has dipped below 90 cents American, a decrease we have not seen since the middle of 2009. So what does this mean for Canadian residents? There are both positive and negative effects due to this drop.

Positive

  • The loonie dropping is good for Canadian business owners. Many Canadians used to travel to the States in order to purchase some of their major items; it just isn't going to be worth it at this time. Since the value of the loonie is lower, we will receive less when converting. For example: If we were to trade $100 Canadian, we would receive around $89 American. Due to this drop, more people are going to be spending their money closer to home. 
  • Select industries benefit; film industry, tourism and real estate for example. The film industry will attract more Hollywood productions to travel North; real estate and tourism also benefit due to international buyers and visitors. 
  • Canadian exportation will be seen as a cheaper option, in a competitive world. Meaning, they are receiving a higher return on their sales. This money will go back into the economy. The same goes for manufacturers.  
  • Investments can go both ways; it is beneficial to investors whom have already bought their US shares prior to the falling loonie. The US stocks that they already have, will create a rise in value due to the loonie drop. On the other hand, it is now more expensive to buy into US shares.  

Negative

  • The cost of goods will climb. This is due to the market within North American; it is set at US currency. This means that Canadians will be paying more for gas, heating and anything relating to energy. For instance; in January of this year gasoline prices went up 0.1% in the US, while prices spiked 4.6% in Canada. Same goes for our heating costs, and will also be reflected in air travel (since this uses a substantial amount of energy).
  • The cost of fresh imported fruits and vegetables has also increased. When the Canadian dollar was at par with the US dollar, produce was cheaper than it is now. Something that used to cost us a $1, is now costing $1.12. It may not seem like a big deal on one item, but it can really add up at the register.  
  • Increases are not limited to produce, anything imported will see an increase in price. Whether it be a new car or electronics. 
  • It may seem like a minor to many, but Canadians are crazy about hockey. Since the NHL is a US based league, Canadian teams are paid in American. Some teams may find it hard to pay the salary needed to attract the best players when the loonie falls. Canada lost two hockey teams last time the loonie dipped; they headed South.  

So What Can You Do?

In terms of imported produce; start supporting local farmers. Canada has so many amazing farmers who offer fresh, organic, locally sourced ingredients. In terms of travel; if you tend to visit family or friends overseas, consider having them visit you. For instance, travellers coming from the UK will receive almost double their money (£100 will convert to $185 Canadian). There is so much to see in Canada, consider taking your family somewhere within the country this summer. Now that the winter is starting to end, cottage country will start up again. Consider renting a cottage, or taking a camping trip. The Canadian wildlife and scenery are extraordinary. Perhaps this will be a good time to focus on what Canada has to offer; you don't need to go far in order to reach somewhere amazing. The greatest advice to you Canadians would be, not to stress. Canada is an incredible country, and has seen dips and hikes in terms of the loonie before. Focus on the positives for now; support local business and explore the country you call home.    

References

Cross, P. (March, 2014). The Weak Dollar Myth: Why the Benefits of a Weaker Loonie are Smaller to the Costs. Financial Post. Retrieved on March 21, 2010, from http://opinion.financialpost.com/2014/03/12/canadian-dollar-weak-myth/

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