The Canadian dollar has been on a slide for the past two weeks or so, briefly dipping below 74 cents U.S. for the first time on Thursday, March 9. That is just as Canadians from coast-to-coast are headed abroad for March break.
If you’re travelling next week, be prepared for more exchange rate pain.
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The loonie strengthened somewhat today, after Statistics Canada released a jobs report that far exceeded economists’s expectations. (Canada added 15,300 new positions in February, while the consensus forecast was a net gain of only 2,500 jobs. The unemployment rate, meanwhile dipped from 6.8 per cent to 6.6 per cent.)
READ MORE: Canadian job numbers beat expectations, as full-time hiring soars
But the rebound isn’t likely to last – for two reasons:
First, the U.S. Federal Reserve will probably raise interest rates next week
The U.S.’s job numbers, also released today, were even more impressive than Canada’s.
The U.S. economy added a net 235,000 jobs in February, ahead of expectations that already have been revised higher. Meanwhile, the unemployment rate, recorded in a separate survey, dipped from 4.8 to 4.7 per cent, almost the lowest it’s been in a decade.
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The data increases the chance that the Federal Reserve will hike interest rates at its scheduled meeting on March 15.
“There you have it … the last piece of economic data for the Federal Reserve to digest before it makes its decision on interest rates next week. And it looks like it was the icing on the cupcake,” BMO economist Jennifer Lee wrote in a research note this morning.
The Fed has been signalling for a while that it would likely raise the benchmark interest rate in March, which would boost the value of the U.S. dollar and put downward pressure on the loonie.
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Second, oil prices have been falling
Oil prices are also dragging the Canadian currency down. They dropped to a three-month low on Friday, as investors grow concerned that global supply is still too high.
U.S. crude prices, to which Canadian crude prices are pegged, had climbed above $50 a barrel in December after the Organization of the Petroleum Exporting Countries and other oil exporters like Russia agreed to cut production by around 1.8 million barrels per day starting this year.
Ironically, however, higher oil prices appear to have enabled U.S. shale producers to ramp up their own drilling, stoking renewed concerns about a supply glut among investors.
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U.S. crude fell below $50 per barrel on March 9 for the first time since December.
And, needless to say, when oil prices head south, so does the loonie, generally.
What you can do to minimize the impact of the exchange rate on your vacation budget
The global economy is conspiring to make Canadian vacations more expensive, it seems. But there are ways to reduce the impact that these currency swings can have on your vacation budget.
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If you are able to plan a few months in advance, for example, you can buy foreign currency ahead of time when the loonie seems relatively strong.
Another way to lock in a favourable exchange rate is to get a prepaid card that you can load up with foreign currencies ahead of your trip. CIBC’s Smart Prepaid Travel Visa Card and the Cash Passport Mastercard are two examples.
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