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Loonie Takes Flight
For the first time in 31 years, the Canadian Loonie opened today, on par against the U.S. dollar. The Loonie has gained 17% in value this year! Find out why and what it means for both Canadians and Americans.
Canadian Dollar at Par with a U.S. Buck
For the first time since 1976, the Canadian dollar opened today's trading valued on par with the United States dollar. One Canadian dollar is equivalent to one U.S. dollar.
The Canadian dollar has been soaring against the U.S. dollar in recent years and more dramatically so, in recent months. A decline in the U.S. currency is cited as the main reason for the recent and dramatic rise of the loonie's value.
The loonie has steadily gained ground against the U.S. dollar, starting from its all-time low of $0.62, which it hit in early 2002.
For more about the flight of the loonie ... read on.
Charting the Flight of the Canadian Loonie
A graph shows just how steadily and dramatically the Canadian dollar has been gaining value, measured against the U.S. dollar. Since its low of 62 cents in early 2002, the Canadian Loonie has appreciated in value over 60%. That's like 10% per year! Astounding.
What's even more amazing, are the recent gains. The Loonie started 2007 valued at about 85 cents U.S. Now on par, it's appreciated in value by 17% in less than a year.
Let's Go Shopping!
The "Loonie" is a nickname that Canadians have given to the gold-colored one-dollar coin that was released in 1987, which depicts a loon on the back.
(Canadians no longer have a $1 paper bill, nor a $2 paper bill. Both are coins. The $1 is called a "loonie" and the $2 coin a "toonie". Get it? Loonie Canadians!)
There's an interesting story behind the "Loonie". Originally, the Royal Canadian mint meant for the $1 coins to have a voyageur theme on the back, rather than the image of a loon. However, the stamping dies were lost during shipment by Canada Post, to the Royal Canadian Mint.
To avoid counterfeiting, the design was changed to a loon. Though never intended for public consumption, the new $1 coin rapidly gained favor with the public and tourists alike. Canadians quickly dubbed the coin a 'loonie' and that name has stuck. (It stuck so well that the Royal Canadian Mint has secured legal rights to the name "Loonie").
Most Canadians are reveling in the recent surge, which means that they can head across the U.S. border and take advantage of their strong currency and U.S. prices (which are often inexplicably lower than those in Canada).
U.S. retailers near the border are not unhappy, as they notice a lot of Canadian license plates on cars in the parking lot. In northern Washington state, retailers that are about an hour's drive from Vancouver, are seeing double-digit sales increases, month-over-month, compared to a year-ago.
Gasoline in New Brunswick was selling for $1.04 a liter (roughly $4.16 a gallon). In Calais, Maine, just across the border, the same gas was $0.81 per liter (about $3.24 per gallon).
In Woodstock, New Brunswick, a gallon jug of milk costs $6.70. Across the border in Houlton, Maine, it's selling for $3.89.
Unfortunately, there are monetary limits on how many goods Canadians can bring back, without paying import duty taxes. If Canadians spend less than 48 hours south of the border, they can only bring back $50-worth of items, before they have to pay duty. All liquor or tobacco items are charged duty, unless Canadians stay longer than 48 hours.
After 48 hours in the U.S., Canadians can bring back goods worth up to $400 duty-free, along with 1.14 liters of wine and liquor or 24 cans or bottles of beer.
It's important to note that under NAFTA, items made in the United States (or Canada) are exempt from import duties. This is easy to claim if the item has a "Made in the U.S.A." label, but can be problematic if it doesn't. (See comment #10 for further detail).
t while groceries are duty-free, there are limits on quantities.
For many items, it's still cheaper to make a purchase in the United States and pay the import duty. Plus the selection is often greater, with more brands, styles, manufacturers and models available.
Fully seventy-five percent of Canadians live within 160 kilometers of the U.S. border. Canadian retailers should remember this and keep prices competitive with U.S. retailers, if they don't want to lose customers.
Besides limits and import duties, there other problems with cross-border shopping. The biggest one: in this post-9/11 era, border security is more stringent, which often means delays when crossing the border.
Not All Great News for Canadians
Canadian manufacturers will be concerned about the strength of the Loonie. Most Canadian-manufactured goods are sold south of the border, so this will mean that U.S. buyers will have to pay more and may buy elsewhere, to save costs.
The slumping U.S. economy, which is contributing the rise of Canadian currency, also has a negative impact on the Canadian economy. Some products, notably lumber, are much less in demand. A weak U.S. housing market means fewer orders, lower lumber prices and this has negatively impacted Canadian producers.
Impact at Home
I first began began making long stays in Canada during 2000. Then, if I wanted to have $1,000.00 in Canadian money, I'd write a U.S. check for about $625.00 U.S. It was great!
I felt like I was getting value for my hard-earned, U.S. dollars!
Now the tables are turned. When I buy $1,000.00 of Canadian spending money, I have to bring more than $1,000.00 U.S. across the border (banks really sock it to you when they perform a simple monetary conversion ... sometimes, in excess of 10% ... the robbers).
So let's see. The cost of goods are higher in Canada, compared to the U.S. (generally speaking). The Canadian dollar is on par with the U.S. dollar (and likely to rise higher). This doesn't bode well for this American's bottom line!
Canadians may be happy, but American tourists aren't!