The Rising Canadian Dollar

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The Rising Canadian Dollar Powered By Docstoc
					Current Economic Factors and the
Effect on Cross-Border Relations
    Hearing Testimony 11/14/2007

          David Davidson
           Project Director
   Border Policy Research Institute
Research Products: CD,
Hardcopy Border Policy Briefs
         Presentation Overview
• Exchange rate
• Crossing volumes and patterns
• WHTI (passport regulation)


Assistance from: Paul Storer, Ph.D. & Hart Hodges, Ph.D.
                                                            Relative Strength of Currencies
                                                  160
Value of of Foreign Currency (Jan. 1999 == 100)
   Value Foreign Currency (Jan. 2003 100)




                                                  150
                                                                                                                    Canadian
                                                                                                                     Dollar
                                                  140


                                                  130
                                                                                                                      Euro
                                                  120


                                                  110                                                                  Yuan


                                                  100
                                                                                                                        Yen

                                                  90
                                                   Jan-03   Jul-03   Jan-04   Jul-04   Jan-05     Jul-05   Jan-06   Jul-06    Jan-07   Jul-07
                                                                                                Month
  Recent Exchange Rate Trends

• Most currencies have risen against the U.S.
  dollar (exception: Japanese yen)

• Since 2003, the Canadian dollar has risen
  by more than the euro (58% versus 34%)

• The rise of the Canadian dollar was quite
  sharp in 2007
     Why is the Loonie Rising?
• U.S. current account deficit

• Rising commodity prices (oil/metals)

• Interest rate differentials (very recently)
                              100                                             1.0




                                                                                    U.S. Dollars per Canadian Dollar
                               80
Price of Oil ($ per Barrel)




                                                                              0.9
                                                         Exchange Rate
                               60
                                                                              0.8
                               40

                                                                              0.7
                               20

                                              Price of Oil
                                0                                             0.6
                                    80   85      90          95    00    05
                                         6                                              1.0
3-month T-Bill Rate: Canada Minus U.S.

                                                                   Interest




                                                                                              U.S. Dollars per Canadian Dollar
                                                                   Rate
                                         4                         Differential
                                                                                        0.9

                                         2
                                                                                        0.8
                                         0

                                                                                        0.7
                                         -2        Exchange Rate


                                         -4                                             0.6
                                              80   85     90        95        00   05
                         5.5


                         5.0                          Federal
                                                     Funds rate
                                                       (U.S.)
                         4.5
Interst Rate (Percent)




                         4.0


                         3.5


                         3.0
                                                      Overnight                     Recent divergence
                                                        Rate
                                                      (Canada)                      in Monetary Policy
                         2.5


                         2.0
                          Jan-05   May-05   Sep-05   Jan-06       May-06   Sep-06     Jan-07   May-07   Sep-07
                                                                  Month
     Results of Strong Loonie
• Strong growth in export of Washington
  state goods to Canada

• Some rebound of cross-border shopping
                                        Washington Exports of Goods: 2003-2006
                                   $7,000

                                   $6,500

                                   $6,000
                                                    Japan
Exports of Goods (Millions of $)




                                   $5,500

                                   $5,000

                                   $4,500           Canada

                                   $4,000

                                   $3,500

                                   $3,000
                                                    China
                                   $2,500

                                   $2,000
                                        2003        2004            2005     2006
                                                             Year
Source: Canadian Embassy
 How High Will the Loonie Go?
• Energy and commodity price growth
  remains strong

• Canadian firms are less competitive

• Canadian economy not slowing yet
Honda Accord
$37,790 Vancouver
$30,260 Bellingham




Canon Digital Camera
$299.99 Vancouver
$349.99 Bellingham
                                 Exchange rate vs. Southbound Crossings at I-5
                                                                       Monthly Southbound Crossings (seas adj)                          Avg Exchange Rate


                                2,200,000                                                                                                                                                                        1.00


                                2,000,000                                                                                                                                                                        0.95


                                1,800,000
                                                                                                                                                                                                                 0.90
Total Passengers, Ped, & Crew




                                1,600,000
                                                                                                                                                                                                                 0.85




                                                                                                                                                                                                                        $US / $CA
                                1,400,000
                                                                                                                                                                                                                 0.80
                                1,200,000

                                                                                                                                                                                                                 0.75
                                1,000,000

                                                                                                                                                                                                                 0.70
                                 800,000


                                 600,000                                                                                                                                                                         0.65



                                 400,000                                                                                                                                                                         0.60
                                            1990:1


                                                     1991:1


                                                              1992:1


                                                                         1993:1


                                                                                  1994:1


                                                                                           1995:1


                                                                                                    1996:1


                                                                                                             1997:1


                                                                                                                      1998:1


                                                                                                                               1999:1


                                                                                                                                         2000:1


                                                                                                                                                  2001:1


                                                                                                                                                           2002:1


                                                                                                                                                                    2003:1


                                                                                                                                                                             2004:1


                                                                                                                                                                                      2005:1


                                                                                                                                                                                               2006:1


                                                                                                                                                                                                        2007:1
                                                                                                                         Year - Qtr
       Crossings by month                                                                                               Crossings by month
  Buffalo, Detroit, Port Huron                                                                                                            Other 71 ports
    Blaine, Sumas, Lynden



1.4                                                                                                      1.4

1.2                                                                                                      1.2

1.0                                                                                                      1.0

0.8                                                                                                      0.8

0.6                                                                                                      0.6

0.4                                                                                                      0.4

0.2                                                                                                      0.2
                                                                                                               Jan-96
                                                                                                                        Jan-97
                                                                                                                                 Jan-98
                                                                                                                                          Jan-99
                                                                                                                                                   Jan-00
                                                                                                                                                            Jan-01
                                                                                                                                                                     Jan-02
                                                                                                                                                                              Jan-03
                                                                                                                                                                                       Jan-04
                                                                                                                                                                                                Jan-05
                                                                                                                                                                                                         Jan-06
      Jan-96
               Jan-97
                        Jan-98
                                 Jan-99
                                          Jan-00
                                                   Jan-01
                                                            Jan-02
                                                                     Jan-03
                                                                              Jan-04
                                                                                       Jan-05
                                                                                                Jan-06
          WHTI at Land Border
• July 2007 interview of 11,250 drivers at Blaine,
  Lynden, Sumas
• “How will you respond to the coming
  requirement to have a passport to enter the US?”
• 83% have passport
                               86%!
  3% will use NEXUS card
                               vs. 50% to 65%
  12% will get passport        rates used in impact
  0.6% will stop crossing      studies
Canadians on I-5, destined for WA –
    How far south do they go?

                                     68% to Whatcom

                                     9% Skagit, Snohomish


                                     18% King


                          5% Other



 Source: BPRI/WCOG 2007 Passenger Intercept Survey
  Impacts on Crossing Volumes
• WHTI impact will be short duration
• WHTI impact will be significant only in
  near-border communities
• Construction at border will have impact of
  longer duration, greater magnitude
            Thank you!
David Davidson
(360)650-2642
david.davidson@wwu.edu
paul.storer@wwu.edu

				
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