Dollars Still Not Equal at Canada’s Cash Registers

Dollars Still Not Equal at Canada’s Cash Registers


Deddeda Stemler for The New York Times

Munro’s Books of Victoria negotiated with a publisher to reduce the gap with American prices.

By IAN AUSTEN

Published: September 22, 2007

OTTAWA, Sept. 21 — Elene Fromanger saw
little evidence of the Canadian dollar’s new might when she went
shopping for health care books on Friday afternoon. Skip to next paragraph


Related
Currency Parity Brings Canadian Shoppers South

(September 22, 2007)

Deddeda Stemler for The New York Times



David Hill, a bookstore manager, has to explain to shoppers why the
strength of the Canadian dollar is slow to show up in retail stores.

All of them were marked with
separate prices for Canada and the United States. With the Canadian
dollar now at par with the United States currency, no calculator was
needed to discover that Ms. Fromanger paid $18 more before sales tax
than an American shopper would have for the same three books.“It’s
ridiculous,” she said outside a downtown Ottawa bookstore. “They still
charge more, but the dollar has been going up for two years. I find it
inexcusable.”Canadians may now be wealthier in global terms, but
the even exchange rate with the United States dollar now makes it
immediately obvious that they also pay more than Americans for many
goods. A report released Thursday by BMO Nesbitt Burns, a unit of the Bank of Montreal,
estimates that products are priced 24 percent higher in Canada than in
the United States despite the Canadian dollar’s steady five-year march
to parity with the United States dollar. During the three-decade slump from which the Canadian dollar just rebounded, Canadians became accustomed to paying more.Not
all price differences are a result of exchange rates. Some agricultural
products, including milk, chicken and eggs, are produced under
supply-management systems. Those closed markets maintain farm incomes
but also elevate prices for Canadian shoppers.And for marketing
reasons, many companies absorbed the currency differences when the
exchange rate was less favorable. Even when the Canadian dollar traded
well below American currency, for example, songs on Apple Canada’s
iTunes stores sold for 99 Canadian cents.But as Canadians once again start comparing American and Canadian prices, two products stand out: books and automobiles.Despite the Canadian dollar’s rise, the price gap for high-end cars is sharp. In the United States, the base price for a 2008 BMW
550i sedan is $59,275. In Canada, the same car starts at 82,900
Canadian dollars. The difference, 23,625, is slightly more than the
Canadian price of a Volkswagen Rabbit hatchback with an automatic
transmission.“I wish I could sell cars at the same price as in
the U.S., but we happen to be in a very expensive country to do
business in and we happen to live next door to the world’s biggest and
most competitive market,” said Lindsay Duffield, the president and
chief executive of BMW Canada. “We price to the market. We’re very
competitive to our competitors here and our prices compared to the U.K.
or Germany are low.”Despite popular Canadian perceptions,
however, the large differences in luxury models may not be reflected in
the automobile market as a whole. In his annual Canadian price review,
Dennis DesRosiers, an automotive analyst based in Richmond Hill,
Ontario, found a price difference of only $1,000 on the cars that
account for about two-thirds of Canadian sales. A potential
savings of $1,000 is not enough to motivate most buyers to deal with
the bureaucratic and technical hurdles involved in importing a car from
the United States.“For the vast percentage of cars and trucks
being purchased by Canadians, the vehicle companies are not ripping
Canadians off,” Mr. DesRosiers wrote.As Ms. Fromanger’s shopping
trip demonstrates, the anger toward book publishers largely stems from
the fact that theirs is one of a small number of products, including
newspapers and magazines, that typically display prices for Canada and
the United States.“We’re always the lightning rod when the
dollar goes up or down,” said Dave Hill, the manager of Munro’s Books
of Victoria, a large independently owned shop in Victoria, British
Columbia. “But it’s a lot more complicated issue than the customers
perceive.”Mr. Hill was among the booksellers that started
pushing publishers for price cuts about three years ago when the
Canadian dollar was clearly heading upward. On the whole, he said, the
industry has been responsive.Random House of Canada, one of the
largest publishers and distributors in the country, has given Munro’s
what Mr. Hill called “extra margin” on many titles. As a result, the
store has posted signs indicating that books from that publisher will
be discounted by 10 percent.A random review of new titles shows
that they are generally 15 percent to 20 percent higher in Canada, in
part a reflection of the higher distribution and marketing costs of a
smaller market. Older titles, however, still show much larger
differences. At the store where Ms. Fromanger shopped, the hardcover
edition of “The Da Vinci Code” by Dan Brown sells for 37.95 Canadian dollars but has a United States price of $24.95.Diane J. Brisebois, the president of the Retail Council of Canada, said Canadian shoppers should be patient.The
merchandise now on the shelves and racks in most stores, she said, was
ordered and priced at wholesale earlier this year, when the Canadian
dollar was worth about 15 percent less than it is now relative to the
United States dollar. But she also cautioned that price
differences reflect more than just one exchange rate. Economies of
scale, different tax and cost structures, and exchange rates with third
countries all play a role, she said.“For Canadians to believe
that our prices will be at par with American prices under any
circumstances is not realistic,” Ms. Brisebois said. “Americans have 10
times the purchasing power. That’s the reality.”

Currency Parity Brings Canadian Shoppers South

Doug Benz for The New York Times

Jessica Smith, who lives near Toronto, packing her car with goods
bought in Niagara Falls, N.Y., on the stronger Canadian dollar.

By WILLIAM YARDLEY and KATIE ZEZIMA

Published: September 22, 2007

BLAINE, Wash., Sept. 21 — Tracey Carle
checked the Web on Friday morning to see the wait times at the border
and then bolted to the United States to shop. Skip to next paragraph

Related
Dollars Still Not Equal at Canada’s Cash Registers

(September 22, 2007)

Peter Yates for The New York Times

Debbie Eldridge of Surrey, British Columbia, shopping with her children in a Bellingham, Wash., mall.

Ms. Carle left her home in
the border town of Surrey, British Columbia, cruised through the
increasingly tight border here in a relatively breezy 34 minutes,
stopped immediately to gas up her sport utility vehicle on the cheap at
the U.S.A. Mini Mart and shot down Interstate 5 toward her real target,
Target.“Anytime
in the last few years it’s been better,” said Ms. Carle, 49, explaining
that she has long crossed the border for bargains. “But now, this is
just whoo-hoo!”The whoo-hoo part, as Ms. Carle and countless
other Canadians have demonstrated recently, is tied directly to the
steady rise of the Canadian dollar against its American counterpart in
recent years, becoming its economic equal this week for the first time
in three decades.On either side of the border, a buck is now a
buck, or as Canadians call it on their side, a loonie. Coupled with
high prices and high taxes for many things in Canada,
the strength of the Canadian dollar is driving Canadians into the
United States to shop for shoes, school supplies, gasoline, used cars
and second homes.“It’s huge,” said Jessica Smith, a stockbroker
who lives near Toronto and spent the day shopping with a friend in
nearby Niagara Falls, N.Y. “But for my clients with investments in the
U.S., it wipes them out.”Sure enough, not everyone is giddy. The
weakness of the American dollar worries some Canadian investors as well
as businesses that rely on American customers. It is also not helping
American tourism in Canada, where the number of visitors from the
United States has been declining since before the terrorist attacks of
Sept. 11, 2001. The rush to cross into the United States is
complicated by new restrictions at the border, where proof of
nationality is increasingly expected and passports are set to become
mandatory as early as January. Here at the busy crossing in Blaine, the
border is likely to be even more clogged because of construction to
expand the number of lanes in preparation for the 2010 Winter Olympics
in Vancouver, British Columbia.“We’re looking at a flood, but
the dam is the border, and it’s tough getting everything through that
border,” said Mike Kent, a real estate agent in Birch Bay, an area
south of Blaine where Mr. Kent said Canadians had been buying property
that looks at the pricier hills of their homeland.“In a perfect
world, the dollar would have gone par when the border was finished,”
Mr. Kent said. “It’s come at exactly the wrong time.”Still, Mr.
Kent and others in real estate and retail on the United States side of
the border are pleased by the turnaround. Five years ago, the Canadian
dollar was worth just more than 60 cents in American money.“They
were always reminding you of how much it cost them,” Debbie Morley, the
manager at West Marine Express, a boat supply store in Blaine, said of
Canadian shoppers, who provide 60 percent to 70 percent of the store’s
business. “Now they’re just so happy. They say, ‘I can buy more!’ ”Experts
emphasize that the shifts in the border economy have not occurred
overnight, that the loonie has been inching toward equality for several
years. Some Canadians said Friday that they had shopped in the United
States even when the Canadian dollar was weak, because of better prices.Hart
Hodges, director of the Center for Economic and Business Research at
Western Washington University, noted that while the number of Canadians
coming across the border has been increasing in recent months, the
numbers remain far lower than they were before the border became
tighter. He also said that many major American retailers had opened
stores in Canada since the last time the Canadian dollar was strong, in
the early 1990s, and that Canadians who shopped south were now often
seeking specific items like electronics or specials at Target and
Nordstrom.Yet the idea of “parity” in the two currencies has
added momentum to make the crossing. “Everybody’s talking about it at
work,” said Ms. Carle.In Vermont, Buzz Roy, owner of Brown’s
Drugstore in Derby Line, said of his Canadian customers: “They don’t
buy anything in particular, but everything in general. We’ve seen a
gradual increase over the summer, and we’ve seen a bigger increase this
week.” Mr. Roy said more customers would make trips if it were easier to cross the border, “but they’re still coming in droves.”In
North Dakota, Crystal Schlecht, who works for the City of Cavalier,
said the arts and crafts show in town last weekend had a surprisingly
international feel in spite of the slow-go at the border crossing.“I’d say 60 percent of the people the whole weekend were from Canada,” she said. “And we’ve never really had that before.”William Yardley reported from Blaine, Wash., and Katie Zezima from Boston. David Staba contributed from Niagara Falls, N.Y.

How high will the Canadian dollar go?

Now that the currency hits parity with the U.S. greenback


Nicolas Van Praet and Grant Surridge,
Financial Post

Published: Thursday, September 20, 2007
TORONTO -- Now that the Canadian dollar has reached parity with the U.S. dollar, how much higher can it go?The loonie hit parity with the U.S. dollar for the first time in 31 years on
Thursday, capping a 62% rise from 2002 on the back of booming
commodity prices and a deepening disenchantment with the greenback. The Financial Post asked some experts to weigh in with their opinions.
Jack Spitz, director of foreign exchange at National Bank Financial:

What happens beyond parity is likely to depend on signals from the Bank of Canada or the Minister of Finance, Mr. Spitz said.Whether
the Bank of Canada keeps pace with the U.S. Federal Reserve and cuts
its benchmark rate in October remains to be seen. But some kind of
comment from the central bank is warranted at this point, he added.
"How far [the loonie] goes will be based on where the market sentiment
sees the Bank of Canada going forward."Shaun Osborne, chief currency strategist at TD Securities:We've
had the view here at TD that the Canadian dollar rally is running on
fumes, said Mr. Osborne. But the biggest development recently is the
further weakening of the U.S. dollar, which may not have yet fully
played out.The loonie will likely push slightly beyond parity into the end of
this year and early next year, he says, reflecting the expectation that
the Bank of Canada will hike its benchmark rate in December.
Either
way, currency traders around the world are taking note of the Canadian
dollar's powerful rally this week, and predicting the top is a
thankless task, Mr. Osborne said.
"As we say in foreign exchange, it's like trying to catch a falling knife."Buzz Hargrove, president of the Canadian Auto Workers union:"It's
a black day for manufacturing and for tourism and hospitality and
gaming. A whole lot of the economy is going to be impacted by this
dollar and that's just tragic," Mr. Hargrove said.Gerry Fedchun, president of the Canadian Automotive Parts Manufacturers' Association, on how vehicle suppliers will react:"It's about productivity, productivity, productivity. Productivity is the short-term solution," Mr. Fedchun said. "The
longer-term is to look at your value lines and move upscale where you
have a value proposition that's hard to duplicate. There's no doubt
that the lower value-added products are going to move out of the
country, just like wiring harnesses and high-labour content stuff moved
out 10 years ago under NAFTA... Everyone's going to look very carefully
at their product line and there's no doubt that volumes will go down
over the next year or so. [In some cases] you're just not going to be
competitive on the bidding. You were competitive before at 65 cents or
even 85 cents. But at $1, there's no doubt we're going to shrink a
little."Benjamin Tal, senior economist at CIBC World Markets:
The
loonie will likely rise a few more cents above the greenback, given its
strong momentum that reflects surging commodity prices and the
possibility of a recession south of the border, Mr. Tal said.
He does not expect the Bank of Canada to move its rates "anytime soon," which is positive for the Canadian dollar.

Reid Farrill, executive director foreign exchange at CIBC World Markets:
From
a trading point of view the loonie still has momentum, Mr. Farrill
said. Parity is somewhat of a psychological barrier, because many
traders in the market have not seen it before, and it will take some
while
for the market to grow accustomed to the new reality, he added.
"It's all happened very quickly," said Mr. Farrill, of this week's surge, which makes predictions difficult.

Ted Carmichael, chief Canadian economist at JP Morgan Chase:
As
long as concerns remain about the health of the U.S. economy the
Canadian dollar could rise another two to five cents versus its
American cousin, Mr. Carmichael said. But it all depends on Canada's
central bank."The Bank of Canada could stop this in its tracks
next week if Governor Dodge comes out and indicates [the bank] is going
to follow the Fed and start cutting rates here," he said. The Canadian currency reached parity with the U.S. greenback on Thursday for the first time since November 1976.At around 3:30 p.m. ET, it was at C$1.0008 to the U.S. dollar, or 99.92 US cents, up from
C$1.0152 to the U.S. dollar, or 98.50 US cents at Wednesday's close.
Earlier in the day, it had risen as high as C$0.9994 to the U.S.
dollar, or US$1.0006, before easing.The U.S. dollar has weakened against most major currencies. But the
momentum for Canada is also coming from the narrowing of the spread
between U.S. and Canadian interest rates after the U.S. Federal Reserve
cut the federal funds rate by 50 basis points this week to 4.75%, bringing it closer to the Bank of Canada's 4.50% key
rate. Canada is a major oil producer and soaring oil prices and
a generally strong economic performance have also buoyed the loonie.