Dollar Parity-

It's been quite a year for the Canadian dollar. Another run at parity with the U.S. dollar looked unlikely just 12 months ago.
Yet, now it is even better just slightly, when the fuel stock report comes out and should the US have a surplus the dollar will fall below par again. Until the central bank puts up the Bank Rate and then . I expect to see at least $1.02-$1.05 for a short time and then level off to around par for another 6 or 8 months.

Yet, on April 6, 2010, the dollar touched parity early in the trading day and spent much of the day just under the even mark. That's good news if you're planning a trip south of the border, thinking of buying a vacation property in the sunbelt, buying shares in American companies or running a professional sports franchise and paying your players in American dollars.

It's not so good if you depend on American tourists to make your living, export to the United States or work in the film business in Canada.

'The strong dollar will keep a lid on imported goods prices, and could lead to some price cutting'
—Douglas Porter

You might be tempted to engage in some cross-border shopping, but you likely won't find much difference in your costs if you've shopped south of the border over the past six months. The Canadian dollar has hovered at around 95 cents US for the past two quarters, so this latest shot at parity has not been as much of a boost to purchasing power as it was the last time around.

"The strong dollar will keep a lid on imported goods prices, and could lead to some price cutting on selected goods," Douglas Porter, deputy chief economist at BMO Capital Markets, said. "More broadly, it will help restrain inflation, and could slow the rise in interest rates later this year. The further the Canadian dollar rises, the less the Bank of Canada will feel the need to boost its key lending rate."

Dollar parity: What does a high Canadian dollar mean to you?

Porter noted the news is not all bad for manufacturers. He suggests that a sustained period of parity coupled with the elimination of import tariffs on industrial machinery in the last federal budget, will make it cheaper for businesses to invest in their operations.

On April 6, 2009, the Canadian dollar was hovering at just under 80.5 cents US. It would have cost you a little more than $1.24 to buy one American dollar. Despite a weak economy, the U.S. dollar was enjoying renewed strength - a far cry from its position less than 18 months earlier when the Canadian dollar set a modern-day record, surpassing $1.10 US.

That day was Nov. 7, 2007. It took a record $1.4703 US to buy one Euro. It took only $1.3448 CDN to buy one Euro. British pounds were going for $2.1051 US and $1.9296 CDN.

With the dollar back around parity with the U.S. dollar, the pound has tumbled by around 20 per cent to $1.53 CDN. The Euro remains at around $1.35 CDN. A trip to the UK this year may be more affordable than it was two years ago, although continental Europe may not be as much of a bargain.

Buy American?

If you do shop or travel frequently in the United States, you might want to consider applying for a U.S. dollar credit card that you've tied to a U.S. dollar bank account. You will save the approximately 2.5 per cent that banks charge for foreign currency transactions when you use your Canadian credit card south of the border.

And with parity again the picture, it could be time to diversify your investment portfolio by buying shares in American companies.

If you buy shares in American companies now and the price remains flat, you'd still come out ahead — but only if the Canadian dollar slips off its lofty perch by the time you got around to selling those shares.

However, economists are suggesting that this dose of parity could last substantially longer than the last one.

Today, April 14, 2010; it is now trading at approx. $1.0039. Still waiting for it to go over the $1.02 Cdn.



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