Effects of dollar parity won’t be felt anytime soon

In late September, the Canadian dollar reached a 30 year milestone when for a few hours it was trading at 99 cents to its American counterpart, and for a brief time even above the American greenback. Financial analysts predict that very soon the Canadian dollar will reach parity with the U.S.

The possibility of dollar parity is causing a lot of heated speculation amongst ordinary Canadians. Many are wondering if they can finally take that stateside vacation without worrying about exchange rates, to others waiting to see the prices of some goods, like books for example, drop to the American price on the packaging instead of the higher Canadian pricing. A few have speculated that parity might even have an impact on the Canadian aftermarket, with U.S.-manufactured parts and technologies becoming cheaper and thereby helping the bottom lines of many who won’t have to pay as much for such things as filters or spark plug, for example.

But before everyone gets too excited about the Canadian dollar, it has to be remembered that when it does reach parity (baring a sudden interest rate hike or a big drop in oil prices, for example), the effects will take some time to make themselves apparent in Canada. The Canadian dollar will have to stay at parity for quite some time, possibly into the next year, before companies begin to change their pricing on goods and services. As well, the Canadian distributors of American-made products, whether it be spark plugs or iPods, have long-term contracts for the good set in advance and those contracts, negotiated at the time when the Canadian dollar was much lower than it is now, have to run out before new contracts can be negotiated at prices that reflect the change in the current status of the Canadian dollar. So immediately, the effects of the strong Canadian dollar will not be felt right away in the aftermarket.

Sometimes the perception of there being a great savings just waiting to be had now that the Canadian dollar is growing strong is just that – a perception and not reality. Dennis DesRosiers has point out on the CBC and elsewhere that some people now have the impression that because of near equality in our currency that Canadians are paying more for their vehicles, for example. This has prompted a sudden upsurge in Canadians going to down south to buy new vehicles, thinking that they are saving a substantial amount of money. In fact, on most vehicles, the difference in pricing is rather negligible, except in the case of high-end, luxury cars.

If there is a downside to the surge in the Canadian dollar it is amongst Canadian manufactures who for too long relied on the low dollar to help them succeed in the States. Now that has ended, those manufactures will have to invest in new technologies and systems to make them more efficient and productive. The strong Canadian dollar may finally shake-up an all-too-complacent manufacturing sector and bring about some much needed change.

Before everyone gets too excited about the Canadian dollar reaching parity, it has to be remembered that when it does, the effects will take some time to make themselves apparent in Canada.