Video: The Canadian dollar fell nearly a cent in value on Wednesday, closing just above 90 cents U.S. The decline happened shortly after Bank of Canada Governor Stephen Poloz voiced new concern about the economy. Shirlee Engel reports.
A rapidly falling loonie is opening up a $20 billion windfall for retailers and other businesses big and small across the country, experts say.
That’s the colossal amount of money that’s leached across the border to line the pockets of U.S. businesses annually as the Canadian dollar has climbed to reach parity with the U.S. greenback in recent years.
Now that trend is reversing course – and quickly.
The loonie shed another half of a cent on Wednesday, driving the value of the Canadian dollar down to nearly 90 cents US — a four-year low that nearly wipes out any savings a Canadian shopper would net from buying a product in the United States, where prices tend to be less expensive.
“The allure of cross-border shopping is dropping by the minute,” Doug Porter, chief economist at Bank of Montreal said.
Record numbers have lined up in recent years at ever-more-congested border crossings like Windsor’s Ambassador Bridge or the Peace Arch south of Vancouver – 4.7 million in November alone, according to Statscan.
Canadian businesses who’ve seen consumers bypass them in favour of a trip to a U.S. outlet mall are licking their lips at the prospect of shoppers spending their time and money at home.
The mostly one-way flow of loonies may actually switch direction, Porter said.
BMO’s annual survey of a basket of randomly selected products (from diapers to electronics) suggests an 88-cent loonie would mean U.S. shoppers crossing into Canada would be the ones saving money, Porter said.
Prices at home headed up
Getting to the United States is also becoming more expensive; gasoline that’s imported and priced in U.S. dollars is getting costlier, said Hendrix Vachon, senior economist at Desjardins.
In fact, rising prices await many consumer products that are imported, with items like vegetables and other produce poised to get more expensive in the coming weeks, Vachon predicts.
“There will be some inconveniences to consumers,” he said.
But the effects of a fast-falling loonie may be just what the doctor ordered for the Canadian economy.
Sluggish inflation amid tepid economic growth have become big concerns for policymakers. “A lower currency can help both of those,” BMO’s Porter said.
It can also aid companies who export services and goods abroad by making their prices more attractive. And it’s exporters who are being asked by the Bank of Canada to take the weight off over-leveraged consumers who have carried the economy through the global downturn.
But while cross-border shopping trips, grocery bills and prices at the pump will all feel the jolt of a falling loonie in short order, the benefits won’t accrue where it matters most for some time yet, Desjardins’ Vachon said.
“When you’re talking about exports, the time frame is longer. Foreigners won’t start buying Canadian products overnight,” he said. “It takes time – months maybe quarters before you’ll see a significant change in export volumes.”
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