Getting over America when considering a winter holiday: Don Pittis
Plunging loonie isn't so bad when you vacation out of the U.S. dollar zone
If you're moaning about the miserable state of the Canadian dollar as you consider a U.S. winter holiday, maybe you should look farther afield.
It's true the loonie has plunged from more than $1 US in 2013 to an 11-year low of 73 cents. But outside the dollar zone, things don't look nearly so bad.
In fact, in some holiday destinations the loonie is worth more than it was at the beginning of this year.
- Canadian dollar dips below 73 cents US as oil sinks
- Jim Gray, oil patch legend says crude may fall to $30
As most of us know by now, the loonie used to be so high not because Canadians were so clever and hardworking — well, not only that.
You may remember that then-opposition leader Tom Mulcair was pilloried for letting the words "Dutch disease" pass his lips.
That's the idea that money flooding into a country to invest in oil and resources, and then more money flooding in to buy those exports, pushes up the currency of big resource exporters like Canada.
The theory says the resulting high currency, the loonie in our case, leads to a collapse of non-resource industries as they are priced out of export markets.
Pooh-poohed at the time, the idea that the loonie is to some extent a petro-currency now is accepted by most analysts.
But as the loonie falls with plunging oil, that's not all that is going on, as BMO senior economist Sal Gautieri reminded us this week.
"As the loonie probes new 11-year lows against the greenback amid diving oil prices, it's worth noting that this is not just a weak commodity story but a strong greenback tale, as well," wrote Gautieri in a BMO report.
With everyone anticipating a U.S. recovery and a move by Fed chair Janet Yellen to raise interest rates on Wednesday, money has been piling into the U.S. dollar, pushing that currency higher than it may deserve to be.
Although the Canadian dollar is down by 26 per cent since 2013 in U.S. dollar terms, Gautieri says "the loonie has fallen a more moderate 10 per cent against a basket of other currencies."
So where to holiday when the U.S. dollar is high?
The sterling shock
If you are considering a trip across the pond, the euro is not the deal it was this spring when a loonie would buy about 75 euro cents. That is now down to about 67 cents.
Likewise, the British pound is not so good. These days, it takes more that two loonies to buy £1, which makes every cup of tea and pint of bitter a nasty shock. If you must go, the only solution for avoiding mental anguish is to never, ever, convert the restaurant bill into Canadian dollars.
But for those willing to take a more adventurous holiday, there are plenty of countries where the currency has declined against the U.S. dollar even more than the loonie has. Yes, Canadian travellers actually get a better deal.
South America remains a good bet. In January you could buy two Brazilian real for every loonie. Now you get about three.
But nearer to home, one of the best travel destinations to spend a loonie is already a Canadian favourite: Mexico.
Last January the Canadian dollar bought 11.60 pesos. That's about 8.5 Canadian cents a peso. Right now, each Mexican peso costs less than eight cents, a rate of about 12.60 per loonie.
If you're taking a package deal, the low peso is no guarantee that airlines and Mexican resorts will be a whole lot cheaper than a year ago. But for adventurous travellers and snowbirds with Mexican winter homes, the difference in the cost of living will be significant.
Of course there is an even cheaper option. With the mild weather in many parts of our country, maybe Canadians won't need a southern holiday this year.
Instead, we may have to head north. or up to higher altitudes, to enjoy some much needed winter recreation.
Sitting cozily by a roaring fire, you can think about all the money you've saved.
Follow Don on Twitter @don_pittis
More analysis by Don Pittis