Currency Exchange Rates: Golden for Some, Lead for Others

October 31, 2007  by in UnCategorized   

By Home Furnishings Business in on November 2007 In late September, many consumers and businesses alike were surprised when the Canadian loony began trading on a nearly one-to-one basis with the U.S. dollar. The one-dollar coin, nicknamed in recognition of the bird emblazoned on it, has strengthened in the past five years to a position where Canadian consumers are finding U.S. goods and services at very attractive prices.

At the end of 2002, one U.S. dollar had the purchasing power of 1.58 Canadian cents. At the end of 2006, the exchange rate was C$1.17 equaled one U.S. dollar. For U.S. and Canadian consumers alike, the movement of the U.S.-Canadian exchange rates could have profound effects on the home furnishings market.

In that five-year period, the purchasing power of the U.S. dollar in Canada dropped by 26 percent. Simply put, that means that U.S. consumers and businesses alike find the prices of Canadian goods more expensive, while U.S. businesses find it easier to sell their goods into Canada.

One reflection of the strengthening of the Canadian dollar is the influx of Canadians looking to purchase homes in the U.S. Pacific Northwest. In an area, like many others in the U.S. where home purchases are off, the “invasion” of the Canadians is a welcome sight to developers and others looking to sell homes. For Canadians, the strength of their dollar means pricey U.S. homes may no longer be out of reach.

U.S. exporters, naturally, favor a weak U.S. dollar, making their goods less expensive for Canadians, while importers are facing a costlier market. One good example is the changing price of paperback books. Books that were printed several years ago might have the following prices stamped on their covers: US$6.95, C$9.95. These prices reflected contemporary exchange rates.

It’s not just the Canadian-U.S. currency exchange rates that have traders taking careful stock of the markets. At the end of 2006, the U.S. dollar had lost 40 percent of its exchange rate with the Brazilian real. Measured against the Australian dollar, the U.S. dollar was off 29 percent in the same period.

The currencies of other countries have also weakened or strengthened, usually the result of local economic factors or financial policy. But with rare exception, the U.S. dollar has been on the weakening side of the equation.

In the 12-month period from June of 2006 to June of this year, the U.S. dollar has lost ground against many of its trading partners in the furniture industry. Double-digit weakening was experienced in Canada, Brazil and Thailand.

Matched with import and export data, these exchange rate fluctuations can present exciting opportunities for home furnishings vendors on both sides of the U.S. border. For instance, U.S. bedding exports to Australia for the first six months of 2007 were up more than 71 percent, compared with the same period in 2006, according to data from the U.S. Department of Commerce and the International Trade Commission.

How much of that import increase is directly attributable to the strengthening of the Australian dollar against its U.S. counterpart isn’t easy to determine, but the change in the currency exchange equation had to help—maybe a lot.

On the other hand, Japanese imports of U.S. bedding for the first half of 2007 fell nearly 21 percent compared with year earlier figures, as the U.S. dollar gained eight percent against the Japanese yen for the same period.

Over more than a decade, more and more U.S. manufacturers have established themselves overseas, developing outsourcing strategies that allow them to successfully compete in a global economy. A weak U.S. dollar overseas means that goods produced domestically may be less costly than foreign-produced products, giving domestic producers an edge here at home.

On the other side are retailers who have gone heavily into direct importing. They may be more interested now in domestic producers, since currency exchange rates now favor them.

The bottom line is that consumers looking to buy home furnishings are almost always basing a large part of their purchasing decision on price. Customers have been trained over recent years to expect low prices on home goods, and they still expect those purchases to be of acceptable quality and last for a long time.

What are savvy retailers and vendors to do? Make sure that you’re getting the best product for the price, whether that product is made in the U.S. or overseas. Know the value of currency exchange rates and how they can affect your business. And, most of all, develop relationships with your suppliers so they can count on you when you’re counting on them.