Should I convert CAD to EUR this early?

May 18, 2010 12:27 PM

I'll be traveling to Ireland in the fall of next year. Is now a good time to get a bunch of Euros for cheap?

I'm in Canada. The Canadian dollar to Euro exchange rate looks great right now. I'm considering exchanging a couple thousand Canadian ahead of time.

Obviously it's not a sure thing that this will benefit me financially, but is it a good bet it will go back up in about a year and a half? If not to where it was then at least somewhere that makes the transfer worthwhile? Is this even answerable?

The fact that I'm doing this for travel and not for pure profit makes this easier; even if it stays around where it's at, I won't lose out. Also, I won't need to transfer the Euros back to Canadian dollars, which should simplify matters.

If there's no clear cut answer, which there probably isn't with any financial question, are there some good resources that can inform me on things that would affect my decision (like the Euro plummeting even further, Ireland switching to a different currency, and other possibilities I haven't considered)?

posted by ODiV to work & money (8 answers total)

If it were anticipatable that the Euro was to become stronger relative to the dollar, many people like you would buy lots of Euros with dollars, driving the price up. That this hasn't happened suggests that it is not anticipatable that the Euro will move one way or the other. You're going to lose out on the interest you would have earned had you kept your money in the bank, and since it seems like you're literally planing on storing thousands of euros in your house for a year, there's a chance of theft/loss you're taking on to do this. Anyway, who travels with that much money? Credit cards are widely accepted in Europe and probably a better option.
posted by deadweightloss at 12:38 PM on May 18, 2010

I can get a bank account in Euros here. I wouldn't keep that much in cash just laying around.
posted by ODiV at 12:45 PM on May 18, 2010

The Euro is lower v. the dollar than it's been for a number of years, but the smart money seems to think that it's going lower.

Then again, it could go higher. Or it could dissolve entirely.

In short, what you're trying to do is currency speculation, i.e. buy currency now and hope that currency fluctuations work in your favor.

This is the sort of risk most people tend to avoid. As deadweightloss says, credit cards work just fine in Europe, and you'll not only get up-to-the-minute exchange rates, but the credit card company won't charge you a fee for transactions in other currencies. It's the no-brainer way to go.
posted by valkyryn at 1:02 PM on May 18, 2010

If it were the US I was going to instead, I would feel comfortable buying USD now and keeping it in a USD savings account until my trip. It would be currency speculation, sure, but parity is about the best the Canadian dollar is likely to do vs. the US dollar in the next year and a half.

I thought the conversion to Euros might be a similar "no brainer". I suppose in this case there are other factors which make it more unpredictable.
posted by ODiV at 1:28 PM on May 18, 2010

I agree with the advice to use credit cards as much as possible, but watch out for this:

the credit card company won't charge you a fee for transactions in other currencies

That's not necessarily true. I know from experience that Capital One doesn't charge conversion fees, but many others (including Chase) do. Call your CC company before heading overseas to check. (And call them anyway, so that your card doesn't get flagged for strange usage)
posted by chrisamiller at 1:41 PM on May 18, 2010

...but parity is about the best the Canadian dollar is likely to do vs. the US dollar in the next year and a half.

If you believe this, then you should buy US dollars. Of course, you'll be betting against what the rest of the market collectively believes (otherwise the Canadian dollar would be cheaper than parity), so I'd say there's no better than about a 50% probability you're correct. I could see speculating on currency being reasonably fun, but it's probably not a good investment. A good investment, IMO, is something which gets you your preferred risk/expected reward ratio and which minimizes transaction costs.
posted by deadweightloss at 2:51 PM on May 18, 2010

Maybe do half now and half later? That way you're sure to be half right, which with my luck would be better because I invariably zig when I should have zagged.
posted by Daddy-O at 6:18 PM on May 18, 2010

I'm not one for currency speculation, but since according to this morning's papers "The euro fell below €1.22 for the first time since April 2006; this morning it was trading at €1.2196" I have to say that this would seem like a good time to buy yoyos if I wanted to play the odds.

You have to decide, though, if the potential risk is worth the couple of hundred euros you may end up ahead. Currency speculation is attractive on a risk vs reward basis because we're talking about *massive* buys; the risk is usually "worth it" for the chance to be up hundreds of thousands or millions or billions of dollars. You're talking about being up less than ten cents on the dollar; is the potential risk really worth a couple of hundred bucks to you?
posted by DarlingBri at 8:08 AM on May 19, 2010