What you can buy for a Canadian dollar these days is absolute noncents. 😀 The loonie has sunken to a multi year low, valued at only $0.86 U.S. The lower Canadian dollar rate today means it’s more difficulty for Vancouverites to pick up milk and cheese for half the price across the border.
This Canadian dollar trend going lower will probably continue into next year due to lower commodity prices and a stronger U.S. economy. This is excellent news. 😀 When the price of oil and other goods fall it’s known as deflation. Many economists and central bankers would tell people that deflation is bad. But don’t let them fool you. Deflationary pressures can create an excellent environment for saving money and finding undervalued investments for those who know where to look. 😉
Thanks to the falling price of oil from $90/bbl to $60/bbl almost everything else in the economy will become cheaper as well. This is because oil is a common inelastic input cost for most businesses. Every restaurant ingredient, furniture, clothing, household items, and even services require some means of transportation, usually fuelled by gasoline, to get from where it’s produced/manufactured to the end customer. So falling transportation costs should lower the price of many goods and services. Gas prices at the pumps haven’t been this low since 2008, but it feels like it’s been decades since they were this cheap.
Ideas for Using a Low Canadian Dollar
Here are some suggestions on what we can do in this current reality of lower gas prices, and a lower Canadian dollar to U.S. dollar.
- Travel Locally – Airplane fares will continue to remain high until 2015. Airlines hedge the cost of their aviation fuel by paying a fixed rate for a set period of time. So flying with WestJet and Air Canada will still be relatively expensive until they renew the contracts with their fuel suppliers at lower prices. But gasoline is quicker to adapt to the changing price of crude. This is why travelling by land is preferred when oil prices are going down. So take a road trip this holiday and save the air miles until next time. 🙂
- Buy Locally – A slower global demand for resources has caused the Toronto Stock Exchange to tumble nearly 12% in the last 3 months. But with discounted stocks and a weak loonie this is the perfect time to buy some local undervalued companies. Teck Resources (TCK.B,) for example, is Canada’s largest diversified mining company. It produces coal, copper, and many other metals from its mines all around the world. The stock is down 54% since the beginning of this year but has continued to pay out a consistent dividend. TCK.B is currently trading at $12.82 per share with a reasonable P/E ratio at about 15, and dividend yield of 7%. Even if the stock doesn’t recover for another 10 years at least we still receive 7% return every year from dividends.
- Save More Money – With cheaper transportation costs most Canadians can afford to put away more money each paycheque. These new savings should be earmarked for either investments or high-interest savings accounts (preferably in a TFSA or RRSP.) With the risk of deflation around the corner, saving money is more important than ever. The falling cost of goods in general will create more purchasing power for savers. For example a gallon of gasoline today is around $3.00. But maybe next year it will be only $2.50, which means our same $3.00 can go further. This creates the opposite affect of inflation and gives consumers the incentive to save instead of spend. Why would we spend discretionary money today if our money could buy us more stuff in the future? 😉
Practice those action to get the most financial benefits out of the current economic state we’re in. 🙂
Random Useless Fact: