With the Canadian dollar now trading at parity with the U.S. dollar, we begin to question the premium that Canadians pay for some items. This is particularly aggravating for books sold in Canada and all things sold at our favourite coffee outlet (We would tell you that it was Starbucks but then we might be accused of product placement).
The Law of One Price (the strict form of the purchasing power parity theorem) suggests that, absent of transaction and transportation costs, identical goods in different countries should sell for the same price once an adjustment is made for the exchange rate. With the dollar at parity, prices in Canada and the U.S. should be the same. They're not ... yet.
Porsche Canada announced in a news release dated April 5, 2010 that they are instituting "Canadian Currency Credits" reducing all Porsche prices in Canada. The term "credits" suggests that the price reduction is only temporary and will last as long as the Canadian dollar remains strong. Judging from sentiments in the currency markets, this could be a long "temporary".
The full article can be found in the Globe and Mail.
Official Canadian dollar exchange rates can be found on the Bank of Canada website.
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