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Strong Canadian Dollar Bad News for Canadian Internet Entrepreneurs

by SMD 


The Canadian dollar hit a new record high. That’s good news for the Canadian economy, but bad news for Canadian internet entrepreneurs and others who earn their income in U.S. dollars.

With the Canadian economy adding 63,000 new jobs in October and the unemployment rate dropping down to the lowest it’s been in over 30 years- 5.8 per cent – the “Loonie” (a nickname for the Canadian one dollar coin which feature an image of a loon) gained two cents in morning trading, and peaked at over $1.07 US.
The Loonie was already doing great because of high commodity prices, but Friday it surged more than 2 cents, to end at 107.04 US, its highest close in history. And it may not stop there. According to a finance article in “The Canadian Press” Bank of of Montreal deputy chief economist Douglas Porter said “I think a reasonable near-term target now is $1.10, but there’s no sign it’s going to stop there.”

The Loonie has now risen 22 cents in 2007 against the U.S. dollar. It is now the best performing major currency in the world. The rising level has helped out Canadian consumers, as they are now getting goods more cheaply, they can more cheaply visit and buy goods in the U.S., and Canadian retailers are lowering some of their prices.

Currency traders believe the stronger than expected jobless report Friday has made it less likely the Bank of Canada will cut interest rates, which means the rate spread between Canada and the United States will remain attractive in Canada’s favour.
The Loonie is increasing due to investors leaving the weak U.S. dollar in droves, and jumping onto stronger currencies, which has a larger impact on Canada’s smaller economy.

While this is good news for many, it is actually quite unwelcome news for Canadian webmasters, eBay traders, and others internet entrepreneurs who primarily get paid in U.S. Dollars. Because the Loonie has increased 22 cents this year, that’s approximately a 20% decrease in real earnings for Canadian internet earners over 1 year. When the last 3 years are included, it’s substantially more.

The bright side of this is that the internet is the new frontier, and there is no shortage of opportunities to increase income. But for most, that’s easier said than done, and it is a strange position, for your country’s economy to be getting stronger- and yet your earnings to be dropping just as quickly. All indications are, with the U.S. dollar not likely to rebound significantly in the next year or two, and the Canadian employment growth and oil industry growth both likely to remain strong, the Canadian dollar will most likely stay strong for the foreseeable future.

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Comments

One Response to “Strong Canadian Dollar Bad News for Canadian Internet Entrepreneurs”

  1. Stuart on November 13th, 2007 4:52 pm

    Great article. The appreciation in the Canadian dollar is affecting the Canadian economy definetly. However, I do not think the bank of Canada will lower rates further as the price appreciation is due mostly to weakness in the US economy while the rest of the world seems to remain in a bullish state.

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