The economists at Toronto Dominion Bank were in the paper this morning saying that the rapid and surprising rise of the loonie vs the U.S. greenback hasn't done much to lower prices of U.S.-sourced goods here in Canada. Now, Doug Porter at BMO Nesbitt Burns, is saying much the same thing:
With the Canadian dollar charging to parity for the first time since November 1976, we have updated our study of three months ago with a few new products on how Canadian retail prices have responded to the loonie’s historic run. The main conclusion stands: It may be a Brave New World for the Canadian dollar, but the Song Remains the Same for the most part for consumers. While we have discovered some fractional narrowing in the prices of some goods over the past three months, the currency’s latest sprint has completely offset those modest moves. Thus, we find that the average price gap on a basket of assorted goods is now roughly 24% at today’s exchange rate—that is, Canadian dollar prices are 24% higher than U.S. dollar prices on identical goods. While it is unrealistic to expect prices to instantaneously adjust across the board to a currency move, this is nevertheless an unsustainable gap. Given that no-one requires a calculator to make these comparisons, the pressure up and down Canada’s supply chain to bring these prices into closer alignment is bound to intensify immensely in the months ahead. This ultimately should help keep a check on consumer price trends, and will thus further reduce the need for much additional Bank of Canada tightening down the line when the current credit market turmoil passes.
The US credit crunch might have a future effect on Canada. How much can the Canadian market handle? With the differences in both interest rate and conference level, no one doubt there is a huge infusion of US money supply into Canadian market. Any Canadian investment must also accounts for the readjustment of the Lonnie. I suspect it will happen when Bank of Canada decide not to raise interest rate. I hope the federal has a respond to this.
On a interesting note. Many Countries has they currency tie to the US. Of that, some economy are still growing. Investor might take advantage of the lower cost now as well as the growth. More profit if when the US currency readjusts.
~Silvester