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“Today Shapes Tomorrow

 Published Every Monday    Volume  32      Special Edition                    October 29, 2007


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What does the dollar slide mean?

We noted in earlier newsletters that the US dollar had become weaker in the past few weeks.  At this time, one Canadian dollar is worth 1.04 US dollars, and one Euro is worth 1.44 US dollar. Weakening of the American dollar against the Canadian dollar is especially remarkable, given that for most of the last two decades, one Canadian dollar was worth less than one US dollar. At one time, in the early nineties, the Canadian dollar had fallen so low, that it was worth about 67 American cents.

What is the impact of weakening the US dollar? First of all, for US residents, imports will become costlier. So if you want to buy a bottle of Canadian Maple Syrup, you will have to pay more in US dollars, even though the cost of the syrup in Canadian dollars has not gone up. Imported cars will cost more. It also means that US residents will find it more expensive to travel abroad. Since the US imports oil, the cost of oil is likely to go up leading to over increase in prices and higher inflation. The second impact is on foreigners. They will find US-produced items cheaper to buy. So if a European wants to buy a Saturn car that is made in the US, he/she will have to pay less money now than before. Foreigners will find it cheaper to visit the US, because the cost of a hotel room, airfare, museum fee, etc., will be less now, when converted into their currency, for example, in Canadian dollars or Euros.   

On the upside, all this can have a beneficial impact in the short run on the US economy as US producers will be able to sell more goods.  US will also benefit from tourists visiting, because these tourists will contribute to the revenue of American hotels, restaurants, museums, etc. 


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