Trying to fully understand the intricacies of the economics of world trade is not surprisingly like figuring out how to unravel the Gordian Knot.
So much of trade is influenced by other economic sectors, which when looked at in isolation are good for a particular area of trade, but when you zoom out to look at the overall impact, it might not be as positive across a broader range of trade.
Of course there are university degree courses dedicated to understanding world economics, but for the layman, of which I am most admittedly one, the connections within the economy are fascinating.
For most of us, we look at the world economy in terms of how it directly impacts us on a personal level.
For example, at a recent luncheon, a former staff associate was talking about their decision not to head south to spend a portion of the winter months in the warmer climate of the southern United States. The reason was simply one of personal economics. They had looked at the state of the Canadian dollar versus its American counterpart, didn’t like that the Canuck buck was, at least in the early winter, rather low against the US dollar and so they decided to turn up the thermostat at home and stay here.
The same conversation did get around to my friend fondly recalling the days of the Canadian dollar being higher than the American one, and how that made a trip south highly advantageous.
That same scenario is generally reversed if you are an agricultural producer. While a weaker Canadian dollar creates some challenges in terms of buying some things, the lower dollar is hugely advantageous when it comes to export sales. When you operate in a country which far over produces the domestic market for most farm products, exports sales are crucial and a lower dollar opens doors to sales.
While no one would want the Canadian dollar to completely tank compared to the US currency, par value is certainly less conducive to export sales.
But the dollar tends to trend higher as oil prices rise, given that this country sits on a significant reserve of oil. In fact just last week the Canadian dollar was up at market close Friday, following the price of oil.
Reports showed oil was up on Friday as West Texas Intermediate crude oil gained US$1.54 to close at US$55.33 per barrel.
While the changes are modest, if it were to become a trend, Alberta and Saskatchewan could benefit significantly on the oil side. We don’t seem to be on any path that will get us to $100/barrel oil, but even a jump of $10 would be big for the sector.
Of course if it drags the dollar higher it could impact export sales in some other sectors, and send more Canadians south on holidays next winter, which has economic impacts that are less desirable.
