Is a Stronger Dollar a good idea?

The Canadian dollar has been on a rollercoaster of late, rising steadily from sub $0.70 cents US to an unprecedented $1.10 US. We’ve all heard about the new found purchasing power of the ‘Loonie’; and seen the lines at border crossings increase dramatically as shoppers rushed off to Buffalo to spend their new found wealth. The Canadian economy has been surging forward on high job creation numbers, increasing trade surpluses, record oil prices and weakness of the US dollar.

Over the past few months we have heard increasing rumblings from the manufacturing, auto and forestry sectors that the strength of the ‘Loonie’ was a risk to business and that Canada could not compete with the dollar so high. The call and contact center market is not bullet proof in the face of these changes. To the contrary, the increasing value of the Canadian dollar has placed the viability of many centers at risk.

So where will this end? Is Canada shifting from being a low cost location, the preferred location for US contact centers seeking lower cost operations, to being a high cost location from which centers will flee to find lower costs in India, Malaysia or the Philippines? Will we see the day when call and contact center are moving to a US location to secure lower operating costs? Is Iowa the new India?

But what is the real problem? Is it that the Canadian economy is so strong that our dollar keeps rising; or is it that the US dollar is so weak and keeps falling? It is an interesting question and one that can have grave impact upon operators of any business.

To answer this question I looked at the two primary culprits in this drama: the US dollar and the Canadian dollar. Then I looked a third variable as a constant: in this case the price of oil. As we have all read the price of oil has hit record prices of late, recently topping the $100 per barrel price (of course this is in US dollars). What if we could remove the US dollars’ decline (or the Canadian dollar appreciation) out of the equation? Well the result might just surprise you…

(insert Appreciation chart)

We can see from the above graphic that the increase in the price of oil (in red) is remarkably similar to the increase in the value of the Canadian dollar (in black). Perhaps this is not too surprising to some as Canada is now regarded as a petro-economy. If we look closer we can see that in Canadian dollar terms little has happened to the price of oil if we price in Canadian dollars.

In October 2005 the price of oil was $63 (US) per barrel and the Canadian dollar was trading at $0.865 per US dollar. Over the 2 year period the price of oil rose 27% in US dollars, but the increase is only 15% in Canadian dollars. So from this we can see that while oil has become dearer, almost half of the apparent increase is due to the weakness in the US dollar.

So what is the impact of this shift on contact center operators? Well India and Philippines have become less attractive to US companies as the value of the Indian Rupee and the Philippine Peso have both increased in value versus the US dollar by 14 % and 21% respectively. So outsourcing to India and similar locations has become financially less appealing as their costs have increased in US dollars. The increase in the cost of Canadian centers has increased even faster and at a higher cost level.

There is little doubt that if the value of the Canadian dollar is sustained at $1.10 or better in US currency there will be significantly job loss, plant and contact center closings. If the US dollar continues its slide then perhaps we would have call/contact centers flocking back to US locations. This is unlikely to occur.

There is pressure in Canada to change interest rates to slow or reverse the appreciation of the Canadian dollar. South of the border there is also pressure to increase interest rates to make the US dollar more attractive to investors. If both happen the Canadian dollar will slide down to parity or lower.

As of this writing the Canadian dollar has shrunk back from the lofty heights of $1.10 to the $0.98 range in less than two weeks. All this means that people, the markets and hype are often overstated. There are always short term pressures to “do this” or to “do that” in reaction to unusual events or circumstances. It is always important to put these unusual events or circumstances in context. Hence the graph shows that the change in the price of oil has been driven by a market perception that the oil supply was at risk. Yet we now have fewer risk factors today than a year ago and that much of the ‘run up’ was due to declining value of the US dollar and not any real or perceived shortage in the oil supply.

In call centers we are all used to unusual and unexpected spikes driven by marketing/sales/operations doing something (without letting us know) that cause every customer, prospect and member of the public to call. These spikes pass. Work call and contact volumes return to the normal forecast or some such previous level. Only if the event is a systemic change to how things are done is meaningful change likely.

The dollars rise and or fall depending upon your point of view is like that. It will return to a meaningful and reasonable level. We will learn to live with it. We did when it was $0.65 and made imports so expensive. We will with a high dollar. Things change. In contact centers that is our daily bread. Things change. If they don’t, then we do have a problem.

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