Is the strong Canadian dollar hurting our economy?



Answer:
I'm not sure where LS W is getting his data, but according to the Energy Information Administration's Official Energy Statistics from the U.S. Government through the Dept. of Energy, the country that we import most of our crude & petroleum products from is Canada. The top 6 countries that we import crude oil from in April 2007 are:

1) Canada - 1.909 million bpd
2) Mexico - 1.460 million bpd
3) Saudi Arabia - 1.458 million bpd
4) Venezuela - 1.182 million bpd
5) Nigeria - 891 thousand bpd
6) Iraq - 562 thousand bpd

As a matter of fact, from Jan. 2006 thru Dec. 2006, the total crude imports were:

1) Canada - 1.726 million bpd
2) Mexico - 1.692 milliion bpd
3) Saudi Arabia - 1.412 million bpd
4) Venezuela - 1.190 million bpd
5) Nigeria - 1.149 million bpd
6) Iraq - 498 thousand bpd.

In total petroleum product imports (all petroleum products including crude oil) Canada is again in the #1 position at 2.479 million bpd in April 2007 and 2.266 million bpd for the year 2006.

See: http://www.eia.doe.gov/pub/oil_gas/petro...

For some reason LS W thinks crude oil is only found in the Middle East.

Now take into consideration this, yes the dollar is worth more than the Loonie (nickname for he Canadian dollar), but the dollar has fallen drastically in value against the loonie over the past 4+ years. In 2002, 1 dollar was worth 1.6060 Canadian dollars. Today, 1 USD is worth 1.058 Canadian Dollars. The dollar has lost over 34% of it's value against the loonie.

Well, if we import most of our oil from Canada (per data released by the US Dept. of Energy) and the greenback has fallen in value against the loonie, thus a weaker USD/CAD exchange rate is going to make energy prices here higher in the U.S., and higher energy prices are going to put and is putting the squeeze on the U.S. economy.

Now, people will argue that a weaker exchange rate is irrelevant because the oil trade is dollar denominated. That is true for the front end. But, since the dollar is falling in value against virtually every major currency, that means that when Canada imports goods from other countries and pays for it from it's dollar reserves, since the dollar has fallen in value, that means Canada will have to pay more to cover the loss in value in the dollar forex reserves.

Let me give you a none Canadian example. Let's go back to 2001/2002 when the EUR/USD exchange rate was at .84, that is, 1 Euro was worth 84 cents. Now, when we bought Crude from Saudi Arabia, say $100 million worth, we'd give Saudi Arabia $100 million. But Saudia Arabia (and the Middle East in general) is not an agricultural mecca. They have to import their food and they import their food from Europe. So, if Saudi Arabia needed to buy 100 million Euro in food, with the exchange rate at .84, it would only cost them $84 million. But, move forward to today, if we bought $100 million in crude today and then Saudi Arabia turned around and bought 100 million Euro in food from Europe, with the EUR/USD exchange rate now at 1.36, it would cost Saudi Arabia $136 million. Thus, the foreign exchange on the back end is going to cost them more.

The same thing applies to Canada. Even though the majority of crude trade is dollar denominated, when Canada imports the goods they need and the dollar falling in value against almost all the major currencies, it's going to cost Canada MORE in the backend foreign exchange.

Under normal circumstances, a weaker dollar would help by making American goods cheaper, thus bolstering the U.S. Export industry, thus decreasing the trade deficit. But answer this; besides weapons, what does the U.S. produce anymore? The U.S. manufacturing base has disappeared.

From 2002 to now the dollar has fallen 34% against the Canadian dollar. From 1999 to today has fallen 60% against the EUR, 45% against the British Pound, 35% against the Swiss Franc, 18% against the Yen and 70% against the Australian Dollar - yet we're still running record trade deficits (something like $850 billion annually). Yes, we have a huge trade deficit with China, but we also have huge trade deficits with Japan and Europe. Thus a devaluing dollar is of no benefit to us since we no longer have a manufacturing base to export products.

In a nutshell, yes a strengthening loonie is hurting our economy because 70% of GDP is consumer spending and since Americans import virtually everything we buy, as imports become more expensive, we'll buy less, thus contracting GDP. Yes, the trade deficit has shrunk, but it's hasn't been bilateral, that is more exports and fewer imports shrinking the deficit; it's been unilateral, that is imports becoming more expensive, thus America importing less. The loss of value in the dollar is hurting the U.S. economy relative to many currencies, not just the Canadian dollar. I think LS W needs to do more research.
Huh? Canadian dollar is weak against the dollar. Last I was over there, I got money back on ech dollar spent. Check your sources, and it should not matter to our US economy, as Canada is not manufacturing or producing very much that we depend on. Things like Oil, Durable goods, Tech and manufacturing is everywhere BUT Canada, those producing countries have an impact for that reason.
I'm not certain if the Canadian dollar's strength is actually hurting the US economy as much as it is hurting the Canadian economy. Canadian goods have become more expensive for Americans, or people from other countries, to purchase because of the increase in the value of the Canadian dollar relative to the US dollar. When things like this happen, the US buyer will often attempt to source domestically or from a different country. All things being equal, the US should now be buying fewer goods from Canada than they were a year or two ago.

On the other hand, if the US is dependent on natural resources or other goods coming from Canada, they will be more expensive if sold in Canadian dollars vs. US dollars. However, I think this is minor compared to the ability to be cost-competitive with Canadian goods.

In short, I don't think the strong Canadian dollar is hurting the US much.
its coming to par so the dollar can merge with it.

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