Canadian Loonie Hits Par with US Dollar

For the first time in over thirty years, the currencies of the US and Canada have reached parity. One dollar CDN is now equal to one dollar US. The rapid rise of the CDN dollar over the past twenty four months has come as a shock to web services firms on the northern side of the 49th parallel. Two years ago, the Canadian dollar was worth approximately $0.85 US, a value that worked well for companies selling their services across the border.

Long used to offering slightly lower prices than our American colleagues or enjoying a 10 – 20% premium when converting US billings to CDN currency, Canadian web services firms find themselves in an odd position. Though consumer and business supplies are suddenly much cheaper, Canadian firms have to work harder to simply maintain consistency in monthly revenue streams.

Fees for virtually all web services in North America are charged in American currency. It’s been that way since the earliest days of the web. US clients expected to be charged in their own currency and given the slight advantage of having a weaker dollar, Canadian companies were only too happy to comply. When the CDN dollar rested in the $0.85 range, a $10,000 (US) contract would translate into approximately $11,500 (CDN).

That advantage has been eroding steadily. Now it is gone entirely. To complicate matters, Canadian economist Frank Mersch predicts the CDN dollar will reach $1.10US before leveling out. For Canadian firms that means a $10,000 (US) contract will only be worth $9,000 in domestic dollars.

While not predicting a slump for Canadian web services, I do perceive some danger for smaller firms existing on the margins. As I wrote a few paragraphs up, Canadian firms will have to generate more work in order to keep up with the monthly bottom line. Though we tend to charge in US dollars (the common currency of the web), we pay our Canadian staff, our equipment and office leases, and our domestic suppliers in Canadian dollars. Smaller or less diverse firms will feel the impact greatest as they likely have less of a buffer with international clients.

For now, Canadian firms are counseled to look offshore for more business, particularly in Europe and Asia. The Euro continues to be a strong currency and current domestic and international affairs do not bode well for a rebounding American economy. Whether the Euro will become the “reserve currency” of the world or not is still up for debate however most economists believe the US dollar will lose that special honour in the coming years.

Fortunately, the Canadian economy continues to be seen as far stronger than that of our American cousins. Our federal government has run an annual surplus for almost a decade, the mineral and resource sector is extremely strong, the tech sector is booming, and the Canadian auto sector is surviving with increased international investment. Unfortunately, our economies are so integrated that fiscal pain felt below the border quickly spreads north.

Tomorrow, we will take a look at various sectors served by the search marketing community with a predictive eye to their near-term future. Stay tuned folks, we’re in for a bumpy ride over the coming quarters.