Where is USD going?

[dipmicro]

Seems to be taking a dip today. I am browsing my vendors websites (based in USD) and the prices vary a lot depending how often they update. While some of my vendors use 1.32 USD/CAD ratio, others are as low as 1.15.

It's a shopping time.

[dipmicro]

Btw. some vendors offer international rates. One of my vendors offers payments in CAD with free shipping to Canada over $200.

I compared the pricing in USD through my VISA rate and even with "FREE shipping" the purchase would come 3-5% more expensive that just pay on their Worldwide website in USD and have VISA worry about the exchange.

I am also observing that credit cards have one of the best rates (compared to vendors accepting multi currency or PayPal exchange). Google is showing 1.22 (center), both TD ans Scotia have ~1.23 buy rate. Seems that TD buy rate is 2.1% above their center, Scotia's 2.5%.

PayPal also claims 2.5% fee but after several experiences I am highly doubting that number or there must be some convenient lag when rate is dropping.

[ampurtle]

Credit cards have reasonable exchange rates because settlement is based on the daily close each day, plus the roughly 1% they charge. PayPal usually adds another 1% on top of the credit card rate for their cut.

The only rate better is Canada Revenue who posts the actual daily close for calculation of duties and taxes.

I see no change in my previous outlook, CAD will hover around 80 cents until the US actually passes a fiscal stimulous package and the money actually gets drawn down.

Theoretically, CAD could stabalize arounf $.85 if the moneys earmarked in the federal budget never get drawn upon in large amounts. A projected 39B deficit could be significantly less if this budget is like the last one and moneies are eramarked but never made avialable. Turns out that the Harper government has the lowest rate of budgetted fund draw down ever. Currently, of all money budgetted and earmarked over the term of the Harper govenrment, only 33% of all bugetted earmarks are actually payed out.

To put that into perspective, the 39B deficit will only be 13B because the other 26B will never get handed over for those supposed infrastructure projects because the fine print in the budget makes it vitually impossible for any province to meet their financial obligation for such projects.

The previous budget also provided a couple billion for infrastructure spending and after 2 years not a penny has been handed over by the Harper government.

Seems Harper's policy of doing dothing is still the governments plan despite the so called promises again this budget. How that eventually plays out has a 50-50 chance o going either way....

[pierrelebel]

"Where is USD going?"

The question should be "Where is the Cdn$ going?"

Since I expect a more severe worldwide recession than most, one lasting several years that will NOT bottom in 2009 as many are predicting, it would make sense to forecast a lower Canadian dollar in relation to its US counterpart for years to come.

Currently, the Cdn$ trades at US$0.83 (or inversely US$1.00 = Cdn$1.23).

I would expect we will see the Cdn$ lower towards US$0.75 (or inversely US$1.00 = Cdn$1.33) later this year or early next, then hitting the US$0.68-$0.70 range (inversely US$1.00 = Cdn$1.43/1.47) by late 2010.

In my view, the recession in the USA (and the rest of the world by extension) will continue until the housing market recovers in the USA. That will NOT happen for years as real estate prices will keep dropping until the inventory is in balance with long term demand. There are still millions (yes millions) of houses/condos that will be forced into foreclosure when mortgages have to be renegotiated/renewed at much higher rates in 2010 and 2011 (that is when the bubble will really burst). And, to make matter worse, those mortgages are higher than the resale value of the homes - resulting in liquidations and more supply on the market.

Until the liquidation is completed, demand for new houses, associated construction materials, etc... will be weak, dragging the rest of the world economy with it.

Eventually, US real estate prices and inventory will have dropped to the point where it makes economical sense to buy again. Then we will see the light at the end of the tunnel (hopefully, it is not another train coming in!).

"Seems Harper's policy of doing...."

In my book, on the long term, the value of the Cdn$ has little to do with what the Canadian government does or does not do. It is largely determined by supply and demand based on the overall demand for our "stuff" and that demand is conditional on healthy US and world economies. .

[dipmicro]

Pierre, I am not sure which area you live in, but I did not detect significant drop in real estate in my area (Burlington, Toronto area).

I did not see any drop in people shopping in my area, they are spending like crazy, prices keep creeping up. Where the hell is the recession?

I think it's media created bs.

[pierrelebel]

"but I did not detect significant drop in real estate in my area "

???

Take a look at:
http://www.canadian-housing-price-charts.235.ca/

While my earlier comments are clearly based on the real estate market in the USA, where housing was grossly overpriced, we are now experiencing and will continue to experience price weakness in Canadian real estate, including GST and Burlington.

While prices in Canada did not balloon as they did in the USA, real estate prices do not go up when folks have lost their job or are concerned about losing their job. The Canadian economy still depends on the American economy (they are our largest customer) and will not recover until after the US economy has recovered. The trend for the Canadian dollar will follow the economy. .

[dipmicro]

Last year some said USD would fall. The speculators were going about China and Japan trying to get rid of their USD reserves making USD fall even harder. The performance of US economy has been low, all stocks are way down. But USD did not fall, it actually slowly goies goes back to several-years-ago value. Which economy is holding the USD up? It's not US econony in my opinion. Perhaps China trading mostly in USD? What happens if this economy starts using their own currency?

As for CAD, in my opinion Canada should look for other trading partners. I realize it's convenient to throw our junk over the border, but it also makes us very vulnerable here.

I started this thread because I am considering switching my accounting (and store) back to USD. Is it good idea?

[pierrelebel]

"Canada should look for other trading partners"

One needs to define "who" Canada is! When you look at Canadian exporters looking for trading partners, it is important to look at the ownership of these Canadian companies.

Unquestionable, the bulk of them are American controlled. When Imperial Oil (for example) makes decisions where to sell its stuff, they first ask their American controlling shareholders what to do for all important decisions.

Even Canadian companies like Research in Motion (great Canadian success story based in Waterloo, Ontario) sell their Blackburry worldwide BUT the bulk of the market is in the USA. That is the reality of the marketplace and it will not change anytime soon.

Our large exporters such as the steel industry or lumber industry can often compete on many products against most American producers. However, little can be exported overseas at competitive prices. .

[dipmicro]

So ... is it good idea to switch back to USD or not? According to both of you, ampurtle and Pierre, it seems like worth to try.

[pierrelebel]

The currency used for bookkeeping does not matter. For tax purposes you still need to convert everything in Canadian dollars.

My books are kept in both currency, depending on the currency of transaction (mostly US$).

All items on my website are priced in US$. Most listings (99%) on eBay are priced in US$ and are listed on eBay.com (not .ca). My eBay store is located on eBay.com and eBay bills me monthly in US$ (paid with my US dollar denominated credit card). .

[craftycatsattic]

Pierre, on the subject of accounting and currency:

I am wondering what is the required way to do it?

I have always done as follows:

1) Converted all my USD sales and purchases according to the average monthly exchange within the month those figures came to be

2) Make adjustments for when I actually coverted the money

Of course there is always a carry-over each year as I do not empty my Paypal account every December 31st but have always assumed my method was fair and acceptable.

[ampurtle]

Well it's 2 weeks later and the stimulus packages are rolling out in the US and here. Point number one is that stimulous packages have never worked and never will, Caines was wrong and we all moved past those outdated theories because after 75 years the proof was there that it just doesn't work. However, nothing else works either, so governments start borrowing on their grand childrens backs to spread money around in the hopes that pulic confidence and trust are restored, because that is what ends any down turn.

I have no reason to beleive that the Canadian dollar with fall below 80 cents for any significant amount of time. We are for all intents and purposes probably at the bottom of the cycle but it will be 18 months for it to become obvious and here is probably another 60 days of downward drift.

While Pierre is right about the US housing situation, the game has changed dramatically. The US interest rate is now ZERO %, so all those renewals are no longer an issue, which is why the rate was cut to the bone, and a good chunk of that debt is being picked up by the government. Bush is gone, the rules have changed.

As for how currencies are set, it is totally up to the currency speculators. The dollar is no different than a barrel of oil... all speculation and no rational assessment of the numbers. It may very well be time to end the floating currencies based on speculation and go back to pegging them for stability, but that would beat the crap out of the greenback being 13 trillion in the hole.

AS for the original question, I would concentrate on domestic sales in domestic currency, and expand your domestic footprint. In other words, go where the money is, which is not the US of A, and the rest of the world doesn't care what currency you are dealing in because they are smart enough to look at the final cost up front. If USA goes ahead witha buy Amercican policy, your US sales will only worsen anyway... but I bet all thos US steel and auto workers aren't watching American 60" flat screens or buying American cameras or etc etc etc. "Buy American" is just another way of trying to bail out industries that are no longer viable.

[dipmicro]

Is there any difference, any at all when listing on eBay.com in CAD vs in USD while all other listing parameters are the same (Worldwide availability, etc).

[pierrelebel]

Hi craftycatsattic .

I only convert all US$ amounts into Cdn$ at year end based on the annual average given by the Bank of Canada (US$1.00 = Cdn$ 1.0660 in 2008; US$ 1.00 = Cdn$ 1.0747 in 2007). No adjustments are made to actual amounts received or paid. That is the advantage of consistently using annual averages. .

[pierrelebel]

" the game has changed dramatically. The US interest rate is now ZERO %, so all those renewals are no longer an issue"

?????

May I respectfully suggest you study this issue a bit more carefully.

Hundreds of articles have been written in the financial press on the subject and a good start would be here:

http://www.mortgageloan.com/second-wave-of-mortgage-crisis-to-begin-2790

"Subprimes have cost the economy about a trillion dollars, and Alt-A loans may contribute another trillion in losses before 2010. Many will continue to reset into 2010, which means that the pain of foreclosures will be time-released and prolonged into the foreseeable future."

Mortgage interest rates in the USA are not down to ZERO. The problem is not only the rate of interest charged on the mortgage but the fact mortgages (in the USA) due to be renewed next year and in 2011 are valued at more than the house. That is the real problem. .

[pierrelebel]

"Is there any difference, any at all when listing on eBay.com in CAD vs in USD while all other listing parameters are the same (Worldwide availability, etc). "

According to eBay.ca:

"Listings in US$ will attract more interest from US buyers and on average are 15% more likely to sell." .

[pierrelebel]

"no reason to beleive that the Canadian dollar with fall below 80 cents "

Here is the five year chart showing the value of the Canadian dollar relative to the US$:



The current downtrend (from above par) started over a year ago and there is no reason to believe it will stop anytime soon. .

[pierrelebel]

On the subject of the mortgage crisis in the USA:

http://yourmortgageoryourlife.wordpress.com/2008/10/20/alt-a-the-risk-abatement-disaster-is-coming/

and this video from a CBS "60 minutes" report a few weeks ago:

http://www.veoh.com/videos/v16927913K8RX9pxs .

[recped]

I would give up Pierre, credible people do not always agree with Keynes but at least they know how to spell his name.

[dipmicro]

According to eBay.ca:

"Listings in US$ will attract more interest from US buyers and on average are 15% more likely to sell."

Ok, I don't want to be a troll, but if eBay automatically converts pricing on .COM to USD, how does buyer find out the seller listed in CAD and not USD ?