How Canadians Can Get the Most Out of Their U.S. Conversion
Find out how to get more bang for your buck when converting Canadian to U.S. Currency.
I get several e-mails each week from snowbirds asking when is the best time to buy U.S. dollars.
I wish there were an easy answer, but there isn’t. However, I can offer a few tips that may help you get the best exchange rate.
First, let’s look at some recent history. According to the Bank of Canada website, the Canadian dollar opened 2017 at US$0.7443. That meant it took $1.3435 of our dollars to buy one U.S. greenback.
The consensus prognosis at the time was that the loonie would head lower, possibly to the US$0.70 range. The rationale was a combination of low oil prices and the expectation that the U.S. Federal Reserve Board would begin to raise its key rate while the Bank of Canada held the line.
Those predictions may have prompted a lot of people to convert loonies before the value sank even more. In hindsight, that would have been an expensive move – and it shows how little faith you can place in currency prognostications, even from top economists.
The sharp decline didn’t happen. Instead, the loonie gradually strengthened over the winter. It only started to pull back in the spring, dropping to US$0.7276 on May 4. At that point, the pessimists were even more insistent that a drop to US$0.70 wasn’t far off.
Instead, the currency stabilized and then began to gain upward traction in May. Comments from Bank of Canada officials suggesting the economy was performing better than expected drove it even higher.
On July 12, our central bank raised its overnight rate by a quarter point to 0.75 per cent and the loonie jumped three-quarters of a cent. In making the announcement, governor of the Bank of Canada Stephen Poloz expressed a positive economic outlook, citing evidence of stronger than expected growth that boosted “confidence in the outlook for the economy and inflation.” That raised speculation about more hikes – the Bank increased the rate by a quarter point in September which, as typically happens, pushed up the value of our currency.
The loonie kept moving up after the rate announcements, hitting a high of US$0.8245 on September 11. At that point, the cost of a U.S. dollar was down to $1.2128. As I write, the rate is US$0.8103, or $1.2341 to buy a U.S. buck.
Two more ways for snowbirds to save money this winter
Have a U.S. dollar credit card. Charging purchases on a Canadian dollar card is expensive. You’re not only hit on the exchange rate at whatever it may be that day, but most cards also charge a 2.5 per cent foreign transaction fee. All Canadian banks issue U.S. dollar credit cards, which you can pay out of your U.S. dollar account, hopefully having converted at a good rate.
If you have a U.S. address, you can open an account at a U.S. bank and have a credit card issued there. Some U.S. credit cards insist on a U.S. address, but I use Chase, which has no problem with my Toronto residence.
Buy all clothes in the U.S. Forget the exchange rate. Even with the higher greenback, clothes in the U.S. are much cheaper than in Canada. It’s one of the reasons why Canadian retailers oppose changes in the NAFTA deal that would allow for $800 worth of duty-free online purchases.
Most of the big retailers like Macy’s and J.C. Penney have regular clothing sales, but you can find even better deals on designer clothes at stores like Bealls, Burlington and Stein Mart. (These are in Florida, but there are comparable outlets in other states.)