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As Dollar Dips, Canada Exploits Lucrative Loonie
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In a notable departure from the Fed, the European Central Bank decided this month to focus on inflation and did not change its rates. That has helped keep the euro high and has also contributed to the fall of the dollar. It is highly unusual for Europe not to have followed a rate cut in the United States, Laidi said.
The Fed's rate cut and the drop in the dollar's value are rippling through the U.S. economy.
The stock markets soar on the expectation of higher economic growth and lending activity. U.S. tourism expects to get a boost as vacations overseas become more expensive. Big conglomerates such as Boeing, McDonald's and Coca-Cola earn more profit from their overseas divisions because foreign currencies are worth more when converted into dollars.
"When the dollar is weak, it increases the attractiveness of U.S. goods, keeps demand in U.S. domestic industries high, which benefits U.S. companies and jobs," said Kathy Lien, chief currency strategist at DailyFX.com.
But the prices of many commodities increase because it takes more dollars to buy copper, gold and oil on world markets. That, in turn, can raise the fuel costs or the expense of making consumer goods such as jewelry and bathroom fixtures.
It doesn't take a college degree to understand how these forces can affect daily life, Lien said. In the 1980s, she recalled, American children living near the border used to cross into Canada and exchange a U.S. dollar for five Canadian quarters, which at the time worked in vending machines and arcade games in the United States.
"It's extremely, extremely significant for the dollar to fall this much," Lien said. "Canadians now are turning the tables on us. Maybe some day they'll come down to our country and exchange their dollars for our quarters."
