Canadian Dollar US Dollar parity

The US dollar has been falling for quite a while now. From what I read the Fed helped initiate the latest dollar slide by cutting interest rates:

From the International Herald Tribune:
Dollar tumbles to new low against the euro after Fed's half-point rate cut

Lower interest rates, used to jump-start the economy, can weaken a currency by giving investors lower returns on investments denominated in the currency.

How does the weakening dollar effect US citizens?

From the Chicago Fed:
Weakening Dollar
Advantages

• U.S. firms find it easier to sell goods in foreign markets.
• U.S. firms find less competitive pressure to keep prices low.
• More foreign tourists can afford to visit the U.S.
• U.S. capital markets become more attractive to foreign investors.

Disadvantages

• Consumers face higher prices on foreign products/services.
• Higher prices on foreign products contribute to higher cost-of-living.
• U.S. consumers find traveling abroad more costly.
• Harder for U.S. firms and investors to expand into foreign markets.

I've read a few articles which predicted this was a symptom that the US is going into a recession which I think is a real possibility. Let's look at the other side. Not everyone thinks the fall of the dollar is a bad thing:

From Newsweek:
Swooning Beautifully

Falling greenbacks used to induce economic panic. Now, it seems, the dollar's demise may actually be a good thing for America and the rest of the world.

But even as homeowners and greenback-toting tourists abroad feel the pinch, the demise of the dollar will ultimately be a good thing for both the United States and the world. The rebalancing would offset America's $765 billion trade deficit. It would also help reduce the cost of labor and keep more work at home. The diversification of reserve holdings could also help ease U.S. political tensions with China and the Mideast by diminishing the notion that those countries stockpile dollars in order to retain a competitive trade advantage.

And finally, my favorite part: This is the only explanation I've ever seen that is simple enough to help me understand the difference between exchange rates and [wiki]purchasing power parity[/wiki].
From The Economist:
Big Mac Index

[wiki]Burgernomics[/wiki] is based on the theory of purchasing-power parity, the notion that a dollar should buy the same amount in all countries. Thus in the long run, the exchange rate between two countries should move towards the rate that equalises the prices of an identical basket of goods and services in each country. Our "basket" is a McDonald's Big Mac, which is produced in about 120 countries. The Big Mac PPP is the exchange rate that would mean hamburgers cost the same in America as abroad. Comparing actual exchange rates with PPPs indicates whether a currency is under- or overvalued.

 

The Economist's latest Big Mac Index:

 

I didn't want anyone to think I'm ignoring that you're a Canadian DS so I looked up some info from your perspective too. I'm no expert but based upon what I have read I will offer you this advice, bring your loonies and shop in the US.

Economists were writing about the possibility of parity between the loonie and the US dollar last year. Why? The Canadian economy is strong in comparison to the US economy and that strength is boosting the loonie.

From CBC.ca May 2006:
What's behind the soaring Canadian dollar?

Look for 92 to 95 cents US by later 2006, some say. And several analysts are calling for the loonie to reach parity with its U.S counterpart by 2007 – something that hasn't happened since 1976.

The loonie's been flying in large part because the U.S. economy has been struggling to get off the ground. Washington is facing budget and trade deficits that have never been higher. In 2005, the U.S. bought $723.6 billion more in foreign goods and services than it sold, registering yet another record annual trade deficit.

From Reuters Feb 06:
Canadian dollar parity with US dollar looms

It might have been unthinkable only a few years ago, but parity between the U.S. and Canadian dollars some day is not that much of a long shot any more.

From Export Development Canada May 2006:
Dollar parity possible – but then what?

Many have begun to contemplate the possibility that the Canadian dollar might reach parity with the U.S. dollar. Since the vast majority of export sales are conducted in U.S. dollars, a 10% rise in the Canadian dollar would clip C$3-4 billion per month from export revenues – a serious matter.

BTW, the US govt acknowledges that Canadian currency has earned parity with the US dollar and that it will probably stay that way for a long time.

From Canadianpress Sept 2007:

U.S. official suggests loonie deserves lofty heights near parity with greenback
Responding to a reporter's question that speculation was driving the loonie higher, Treasury Secretary Henry Paulson, in the Ottawa area to sign a new bilateral tax agreement, said there were sound economic fundamentals supporting the Canadian currency.

 

Cheryl, Stop trying to make him feel better! He's right:

"Nobody seems to care about my post."


<snicker snicker!!!>

 

J/K, DS!

I'll meet ya in NY an we'll do sum bar-hoppin'!!!