How's that currency devaluation coming?

Yahoo:  The U.S. greenback broke above $1.40 versus the Canadian dollar late last week in the wake of a softer than expected inflation and wholesale salesprints north of the border.


And according to Scotiabank Economist Derek Holt, the timing of the loonie's slump is abysmal as it drains debt-laden households' purchasing power precisely when big-ticket purchases like homes and autos are running at all-time highs. And the higher they are, the farther they could potentially fall.

"The currency's plunge couldn't have happened at a worse time for the country’s household sector," Holt lamented in a note published on Friday. "When a currency declines as CAD has alongside a deep negative terms of trade shock, it is among the mechanisms through which markets price a large wealth transfer out of the country to the regions of the world that are large net importers of commodities."

It takes more oil to trade for one of those  Chinese iPhones. C on tinuinbg:

Import compression has occurred, Holt acknowledged, with real volumes shrinking in back-to-back quarters, but import substitution - making goods or services domestically that were previously produced by foreigners—might not be in the cards. "Canada doesn’t produce at home many of the consumer goodies that are desired especially on the bigger ticket side of the equation," he wrote. "It is also unlikely to start doing so."

But Krugman proved that trade is complementary, so we are not surprised at the Canadian hardship.   Krugman also says currency devaluations are less painful than internal devaluations.  The effect is the same, the difference is that a currency devaluation  does not include a bunch of corrupt politicians engaging in  special interest protections.