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article imageCanadian loonie hits new low

By Ken Hanly     Dec 18, 2015 in Business
Ottawa - During 2015 the Canadian dollar — the Loonie — has lost 17 percent of its value against the U.S. dollar. Yesterday it closed below 72 cents U.S., the lowest value since the spring of 2004.
At the present exchange rate it will cost $1.40 Canadian to buy one U.S. dollar. With service fees it will cost about $1.43. Economist at the Bank of Montreal, Doug Porter, said: "The only bigger annual decline was in the extreme conditions of 2008, when the Canadian dollar fell 18.6 per cent — a threshold I thought would never even be approached again." We still have well over a week to go in 2015, so we could get closer to that level.
The decline in the loonie is in part the result of the steep slide in oil prices. Futures on Thursday were down 57 cents to $34.95 a barrel, the lowest price in seven years. Another factor is the recent raising of key interest rates by the U.S. Federal Reserve. In contrast, the Bank of Canada is keeping our interest rate at a lower level and may even lower the rate further in an attempt to stimulate the economy.
Some analysts predict that the loonie could go as low as 70 cents U.S. Canada is not alone in suffering a decline in the value of our currency, however. The U.S. dollar is climbing in value relative to major currencies. The loonie is actually holding up reasonably well compared to some other currencies. The Federal Reserve decision also helped push up the American dollar against the British pound, Japanese yen, Australian dollar and the euro.
Canadian Prime Minister Justin Trudeau said to reporters in Vancouver: "Obviously the economy of our largest trading partner picking up is a good thing, potentially, for Canada, but whenever there are shifts in the value [of the loonie], especially decreases, there are both challenges and opportunities."
Among the challenges will be higher costs for Canadian snowbirds who fly south to avoid the harsh Canadian winters. The costs in the U.S. will be considerably higher in terms of Canadian dollars. Perhaps, the snowbirds should travel further south to Mexico and beyond where the dollar may purchase more. Deputy Chief economist at TD Bank, Derek Burlton said: “Clearly there’s going to be some hurt in some of the traditional snowbird markets.” The bank predicts the loonie will drop to a low of about 71 cents but recover to about 80 cents in the next couple of years. This is still a long way from where it was not that long ago. Burton thought that snowbirds in areas such as economically depressed Alberta might stay closer to home. Others could cut their expenditures while in the US or cut the length of their stay. Many snowbirds, may be well enough off to simply continue on as before.
David Watt of the HSBC Bank of Canada along with others note that the weaker dollar will make out exports cheaper in terms of the U.S. dollar, a prime market for our export goods. However, the weaker dollar also is a symptom of weaker demand for our raw materials and oil both key exports. Watt said: “If you want to be an optimist, you lean on the one side that it will help boost exports.m I tend to lean more to the second side, that it reflects a degree of concern about the global economy.”
Optimists hope the growing U.S. economy and lower prices for Canadian goods will over time result in considerable growth in exports, helping the Canadian economy recover from its present relatively weak performance. The high U.S. dollar may encourage more Americans to visit and shop in Canada where items may now be less expensive than in the U.S.
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