By Gigi Suhanic
National Post
FP Money
Saturday October 11, 2003
It's convenient that Casino Windsor posts the
greenback/loonie exchange rate right outside
its walls. That way, when Joseph Myers drives
by, he knows what his take-home pay will
be on any given day.
Dr. Myers, an optometrist, lives in the Ontario
border town of Windsor but works at the University
of Michigan in Ann Arbor, about an hour's drive
away.
Dr. Myers may be in the minority in his daily
work routine, but like many Canadians he has
mixed feelings about the rise of the loonie
against the U.S. dollar. The loonie hit a nine-and-a-half
year high yesterday of US75.73¢ and has
gained around 18% since the start of the year.
Adrian
Mastracci, investment counsel and financial
advisor at ‘fee-only’ KCM Wealth
Management, says, "Once you move outside
your own border you create another variable.
This is a time to make sure you have a
properly diversified portfolio with the
right asset
mix and across jurisdictions.”
Dr. Myers is paid in U.S. dollars, which he
transfers into a Canadian bank account from
which he pays most of his bills. When the
loonie was in the low US60¢ range, he
was pocketing as much as C$1.55 on each US$1
of pay.
Recently, Dr. Myers has seen a "significant" cut
in his income.
"You budget and expect a certain return
on the [U.S.] dollar. For it to drop so suddenly,
it takes a little while to rebudget and make
sure you're not overburdened," he says. "I
have to be a more exacting money manager."
For example, Dr. Myers says he'll have to
earmark more money for his mortgage. Instead
of putting aside US$250 weekly, it will be
more like US$290. And he'll have to cut back
on travel. Last year he kept a hectic schedule,
visiting New York, Spain, California and Miami.
On the plus side, Dr. Myers thinks he won't
have to pay any extra taxes to the Canadian
government this year -- a combination of the
exchange rate and his donations to charity.
Like Dr. Myers, most Canadians are looking
at both pros and cons of the loonie's rise.
"In the grand scheme of things, in the
very short-term, it's a pretty unambiguous
positive for the average consumer," says
Marc Lévesque, senior economist at the
Toronto-Dominion Bank.
Prices of imported goods -- which for the
most part are bought in U.S. dollars -- have
been "falling like a stone in Canada," Mr.
Lévesque says.
According to Peter Woolford, vice-president
of policy development and research at the Retail
Council of Canada, clothing is one area where
consumers will see an immediate benefit from
the loonie's higher buying power.
"The money never sticks to the [clothing]
retailers' fingers," Mr. Woolford says.
In the rest of the retail sector, from furniture
to appliances to books, Mr. Woolford says vendors
are more apt to split the savings with the
consumer, holding some of the extra money back
to pad their profit margins.
However, he believes price competition among
retailers will put that practice under pressure.
Adrienne Warren, a senior economist at Scotiabank,
thinks the currency fluctuations should "in
general" show up in lower food prices
because Canada imports a substantial amount
of U.S. food.
Pricing on luxury goods remains above the
fray since the steep cost of something like
a Louis Vuitton handbag is part of the item's
branding statement.
Most economists also agree that the loonie's
speedy ascent will keep interest rates low
for some time, continuing to fuel the housing
market, among others.
On the investment front, U.S. securities look
more attractive right now. But Adrian
Mastracci of KCM
Wealth Management in Vancouver cautions
that "once you move outside your own border
you create another variable."
He says this is a time to make sure you have
a properly diversified portfolio with the right
asset mix and across jurisdictions.
"It may behoove investors, if they don't
understand all the gyrations [of the market],
to sit down with an advisor and understand
how all these [elements] can help your portfolio," he
says.
Among the largely good news from the dollar's
activity, Mr. Lévesque notes that the
one major worry for consumers is the potential
for job cuts as the loonie takes a toll on
the manufacturing and exporting sectors.
"Yes, [the loonie] keeps a lid on prices
and as a result that helps consumers' pocketbooks.
But that's the case as long as they still have
jobs," he says.
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