Toward an $0.85 Loonie
January 23, 2014
The Canadian dollar has tumbled in recent days to below $0.90. In fact, all commodity exporting currencies have weakened in the past year.
The reasons for a weak $Cdn can be enumerated:
- Commodity prices have slumped over the past two years. Why ? A weak Europe, a struggling America and China’s factory output and investment growth weakened in December, adding to signs the world’s second-largest economy is losing momentum as analysts forecast 2014 expansion at the lowest in 24 years. Tighter current or expected monetary policy, whether in India, China, Turkey, or in the US (accompanied by higher interest rates) has also added to weakness in a number of commodity sectors.
- The Bank of Canada has shown no inclination to move toward higher interest rates. Central bank Governor Stephen Poloz said low inflation means the Canadian economy is ill-prepared for another shock and admitted the door is slightly more open to a rate cut. Behind the scenes the Government of Canada does not want a strong dollar, with an election looming in 2015, a weak dollar would boost exports and garner votes, it thinks.
- The US has become much more self sufficient in oil, with North Dakota and Texas production dramatically increasing. As well, the US has begun exporting natural gas to Canada. In other words Canadian exports to the US have lagged.
The lower Loonie should be beneficial for tourism in the north.
- More people in Canada would tend to stay closer to home, as the cost of foreign travel gets higher.
- Most of the visitors to Yukon are from the US. In 2013 border crossings totaled 332,381, an 8% increase from 2012.
- In the NWT, tourism spending was up 6% in 2013 compared to a year earlier. While hunting and fishing visitors are down, off-season Asian visitors are up.
- Tourism in Nunavut is only one half of NWT and one tenth the Yukon, but it has been increasing as well. In 2013 18 cruise ships visited Nunavut stopping at 38 locations.
The Loonie is heading for $0.85. This is good for tourism which is growing strongly in all three territories.
- Darren Campbell, "Don't look back", Up Here Business, Jan-2014, pp.32-41.