Should we be worried that the Loonie has been wading recently in the 75 cent range? Fact is the dollar has not come up for air above 80 cents for almost a year, since early February 2018: https://ca.finance.yahoo.com/quote/CADUSD=X?p=CADUSD=X

The new normal?

Many factors go into the valuation of the Canadian dollar:

-interest rates

-the price of oil

-the strength of the Canadian economy

-NAFTA (or USMC)

-the strength of other currencies that we trade heavily with, USD and the Euro

Many FX experts are pegging the dollar in the eighty cent range next year: “Good economic conditions in Canada are leading toward ongoing tightening by the Bank of Canada,” said Greg Anderson, head of foreign-exchange strategy at Bank of Montreal, who expects the Canadian dollar to strengthen to about 78.74 US cents over the next three months.

Nobody really knows. If you have an opinion on interest rates, or the price of oil you may be able to make a reasonable estimate. Now that NAFTA is supposedly signed and sealed, chances are the Canadian dollar will not be so volatile compared to the US dollar

We all have educated guesses. But, just like our Football picks, on ‘Any Given Sunday’ anything can happen. So, on any given other day of the week, just a Trump tweet can change everything in a heartbeat.

It becomes hard to plan out your vacation and budget how much it would cost you as the dollar fluctuates against US and the Euro. The cost of your vehicle is affected. Oranges from Florida. Televisions from China and just about everything that we import.

For your business, a lot is at stake if you buy or sell goods or services outside of the country. If you carry accounts receivable or payables in foreign currencies, then you have increasing exposure to the fluctuations. And likely all of your overhead, salaries are in Canadian dollars.

Remember, your profits should be based on factors you can control in order to limit risk.

What you can do:

1.       Forward exchange contracts can help you lock in your future buy or sell price at an exchange rate today. Your bank will be able to set this up for you.

2.       FX surcharge where you add a percentage for FX right on your sales invoice.

3.       FX buffer where you add a percentage right in your costing before you calculate your mark-up.

4.       Get terms on your foreign payables and pay them down when the exchange is favorable. Or transfer to your US or Euro bank account when you have the cash flow and the exchange is right for you.

Sounds simple to say, and I will still say it: During volatile time for the dollar, limit your operational risks to foreign exchange as much as possible. If not, you may make a lot of gains OR losses on the exchange rate, but don’t be a Cowboy. Stick to your business model.

Gavin Correa
December 7, 2018

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