Canadians are almost as anxious about the U.S. dollar exchange rate as they are about the weather. Substitute higher or lower, for warmer or colder and they’re interchangeable.
We shop across the border and we buy things online from the U.S. retailers. About 750,000 of us, mainly in Ontario and Quebec, visit Florida each year. Canadians are the number one foreign buyers of U.S. properties.
Readers often ask whether there’s a good time to buy U.S. dollars and how to tell whether it’s here. The dollar’s swoon from 92 cents a year ago to under 80 cents (U.S.) Monday, has made the question more frequent.
We tend to have short memories when it comes to how our currency moves. The last few years when the dollar has been close to par are rare. When it happens it doesn’t usually last long as the stretch between 2011 and 2014 has shown.
Bank economists are calling for something between 77 and 80 cents by the fall. At the low end, the Royal Bank and TD Bank see 77 cents, while Scotiabank sees 79 cents and Bank of Montreal 79.8 cents.
At 80 cents, $1,000 U.S. costs $1,250 Canadian. At 76 cents U.S., it costs $1,316. That’s significant.
Our dollar is most often worth far less than the U.S. currency. The average over the last 25 years is 81.46 cents U.S., according to the canadianforex.ca web site. We have an economy one-tenth their size, businesses face higher costs here and the currency moves with the ups and down of demand for resources,
It is also affected by the political climate. In the early 1990s we struggled with the perception of runaway public spending. The Wall Street Journal called us that other third world country on their border, with a “northern peso.”
The dollar’s all-time low came in early 2002 in the wake of the Sept. 11 attacks when it hit 63 cents U.S. It climbed pretty much steadily thereafter, hitting a high of $1.08 U.S. in 2011 as we escaped the worst of the global financial collapse and subsequent recession in Europe and the U.S.
So, here are some things you can do:
Buy now: If you believe the economists, there’s no time like the present. Continued weakness in the oil patch and slow growth will mean more downside ahead.
Buy every few months: That way you end up with an average cost over the course of a year. You may not get the best rate, but nor do you get the worst. “Dollar cost averaging is a viable option,” Toronto Star contributor and investment expert Gordon Pape said recently in his Internet Wealth Builder newsletter. “It should work as long as the dollar doesn’t move into a steady downward trend.”
Buy on spikes: Pape’s preferred approach is to keep an eye on the news and buy any time there is a run up, as in early May. Then the dollar traded over 83 cents U.S., as oil prices headed higher.
Set up U.S. dollar accounts: Our banks offer U.S. dollar credit cards, plus U.S. dollar chequing accounts. You can move Canadian funds into them, convert the money to U.S. dollars and write U.S. dollar cheques.
This avoids some fees and can be linked to a U.S. dollar credit card. The advantage of these cards is that they avoid a 2.5 per cent transaction fee, usually paid on top of the exchange if you use a Canadian card to shop in the U.S. Other cards that bypass the fee include the Sears Financial Master Card, Chase Mariott Rewards Visa and the Amazon Rewards Visa.
TD Bank and RBC also offer full service U.S. banking, which sets up the accounts in the U.S. These are useful for snowbirds and others who travel frequently in the U.S.
Use bulk buying power: The Canadian Snowbird Association has a currency exchange program. It offers better rates than the bank because the CSA can buy in bulk. You must become a member ($25 a year) to take advantage of their program. They withdraw Canadian funds from your chequing account once a month and deposit the equivalent into a U.S. account for you.