The Canadian dollar is expected to spiral lower throughout 2014, after a 3.1 per cent slide in the first two weeks of the year that has taken it to its lowest levels since 2009.

On Wednesday, the loonie was down 0.07 to 91.27 US in the morning before recovering to 91.37 at the close of trading. 

The stronger U.S. economy is putting pressure on the Canadian currency, with earnings from bellwether stock Bank of America rising and U.S. job numbers in recovery.

A report from the World Bank showing a recovering global economy also reflects badly on Canada. The loonie has been in decline for six months against the currencies of other developed nations.

Recent Canadian economic data has disappointed markets, particularly reports last week showing a rising trade deficit and December employment data showing the loss of 46,000 jobs.

'On a par with the U.S. dollar, our dollar is way too expensive.  Everything we sell – tourism, manufactured goods, services we sell to the world look too expensive, so sooner or later it had to come down'- Unifor economist Jim Stanford

Many currency traders have been waiting for the U.S. dollar to spring back, based on its economic trends, before moving out of other currencies such as the loonie, which until recently promised greater stability. For many, the Fed decision to taper its bond-buying program was the signal they were looking for.

Goldman Sachs reports predicting that the loonie will fall in 2014 are also influencing traders.

Jim Stanford, economist for labour union Unifor, says he expects the loonie to be driven down to the mid-80 cent level this year, because once currency markets start moving, they move quickly.

“For years the government said, 'Look at that strong dollar – it’s a sign of our strong economic fundamentals,'” Stanford said in a discussion of the 2014 economic outlook on CBC’s The National.

That created the perception that a high dollar was good for the economy, he said, but it helped sap Canada’s manufacturing sector, which has been hurting for the past two years. So he believes a falling dollar is welcome news.

“On a par with the U.S. dollar, our dollar is way too expensive. Everything we sell – tourism, manufactured goods, services we sell to the world look too expensive, so sooner or later it had to come down,” Stanford said.

“The silver lining is that it will help our exports. It will take a year or two before we start to feel any benefit.”

Lower loonie may help jobs

While businesses that export will benefit from increased demand, the higher dollar could hit hard anyone who imports parts or materials from the U.S.

Last week’s dismal job report showed full-time jobs were lost in the oil patch as oil prices edge down. But a lower U.S. dollar could help reverse that trend, as oil prices are set in U.S. dollars.

Independent economic analyst Patti Croft says a lower dollar would bode well for an increase in Canadian jobs.

“The best chances for Canada are a weaker dollar and a stronger U.S. economy. ... The U.S. economy been a surprise on the high side and that will create jobs here at home,” she said.

Pain for travellers

For Canadian travellers, the impact of a lower dollar hits harder and almost immediately. Travel to warmer areas that is popular the first three months of the year has already risen in price — for U.S. destinations as well as other countries where hotels are priced in U.S. dollars or currencies are pegged to the greenback.

For Canadians, shopping for fruits and vegetables flowing in from the U.S. and other retail goods made in the U.S. could also become more expensive. However, there is intense competition in both the retail and grocery sectors in Canada, with U.S.-based retailers including Wal-Mart and Target entering the market, and that could moderate the price increases.

The flipside is that the more expensive U.S. dollar will make cross-border shopping costlier, leaving Canadians calculating the conversion rate when they see a lower price in a U.S. shop.

The tourism sector in Canada is likely to reap some rewards, however, as travel to Canada becomes more affordable for Americans with their stronger dollar. Canadian music and theatre festivals, such as Ontario's Stratford Festival, as well as ski resorts and summer resorts stand to benefit.

Mixed bag for investors

For those investing in U.S., not only did New York’s Dow Jones index rise 26 per cent last year, but the falling loonie makes the return higher on any U.S. equities.

“One of the silver linings is for investors. If you have investments in the U.S., they are up 30 per cent , but with fall of the loonie, they’re up more than 40 per cent,” says personal finance expert Preet Bannerjee.

For most Canadian investors, especially those with retirement savings in mutual funds, this is not reassuring, as most of their money is in Canadian markets.

But Bannerjee said it’s a good time to talk to your investment adviser about any hedging you’ve done against a higher U.S. dollar as the ground is shifting rapidly.

Bank of Canada and rates

If the trend to a lower loonie continues, there will be pressure on the Bank of Canada to lower interest rates here. The BoC makes its next statement about rates next month.

"There is a significant minority of observers believing that a shift towards an easing bias is in the cards next week and, unless the notion is dispelled, it is hard to imagine the Canadian dollar reversing some of its recent losses,” said Mark Chandler, a currency expert at RBC Dominion Securities

Bank of Canada governor Stephen Poloz has signalled the bank is in no rush to raise rates and most analysts aren't looking for a hike until next year when there is potential for the Fed to end its stimulus program.

Poloz has expressed surprise at Canada's persistent trade deficit amid a recovering U.S. economy, and said he has room to move either way with interest rates.

James Kwok, a currency expert at Amundi Asset Management in London, says structural changes, such as the loss of exports from tech innovator BlackBerry while iPhones are imported in record numbers, are hurting Canada's trade deficit.

He expects the BoC to allow the loonie to fall until exports recover.