The loonie’s decline over the past year may have hit consumers in their pocketbooks as some costs have risen this year.
But it’s provided a clear lift for one group: domestic tourism operators, like ski resorts, theme parks, hotels and restaurants.
“The recent drop in the loonie is helping Canada become a more affordable destination for globetrotters while also making ‘staycations’ a more cost-effective alternative to going abroad,” economists at CIBC said in new note published Friday.
The tourism sector has indeed thrived this year as the loonie has lost steam against the U.S. dollar and other currencies, as many Canadians skip the trip abroad and more foreigners take advantage of the cheaper prices based in the local currency.
Growth in the sector this year has been far above the trend line of the previous few years (see chart), when the Canadian dollar was perched at loftier levels.
Visitors to Canada were up by two per cent through July from year-ago levels, CIBC said. Total economic activity from the tourism sector surged more than six per cent in the summer months (annualized).
And the better growth rate should continue into the final six months of the year, the economists said.
“A lower loonie should give a timely boost just as the skiing season—as much as we’d like to deny it—is right around the corner,” CIBC said.
How low can it go?
A big jobs report from the United States sent the loonie lower by nearly penny on Friday before the Canadian currency bounced back. It’s hovering around the 89-cent level U.S.
Experts, including CIBC, suggest the dollar could weaken toward the the 85-cent range over the next several months.
The loonie is being driven lower by a rallying U.S. dollar, pushed higher by improving economic conditions in that country. Some investors also remain wary of domestic risks such as bloated consumer debt levels and potentially overvalued housing market.
Some, like HSBC Bank Canada, believe it could decline to even lower levels by mid-2015.
Here’s how the loonie has performed relative to some other currencies since last fall:
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