Rising loonie: Who wins and who loses?
Loonie touches 80 cents for first time since June 2015
Buoyed by strong sentiment about the state of the Canadian economy, and getting the benefit of general weakness in the U.S. greenback, the Canadian dollar is now flying in territory it hasn't seen in two years.
A recent interest rate increase by the Bank of Canada, and the expectation of more to come, has the loonie up about 10 per cent over the past six weeks. The Canadian dollar rose above 80 cents US on Monday before closing at 79.97 cents US.
As with any big fluctuation in our currency, there are those who will benefit from it and those who will feel the pinch.
Some of the winners
"The obvious winner would be the average Canadian, just in terms of their travel plans or in terms of what they buy from the U.S.," said Doug Porter, chief economist at Bank of Montreal.
The recent loftiness of the loonie makes it cheaper for Canadians to travel when they buy vacations priced in U.S. dollars.
For example, a one-week cruise out of Fort Lauderdale, Fla., priced at $878 US would have cost $1,203 Cdn when the loonie was trading at 73 cents US. With the loonie at 80 cents, that same cruise would cost $1,097 Cdn — meaning a consumer would save $106.
Similar to consumers, Canadian businesses that buy goods or services in U.S. dollars would wind up paying less for those items after factoring in the effects of our fluctuating currency.
For example, professional sports teams often pay player contracts in U.S. dollars. A stronger loonie means the revenue earned in Canadian dollar goes further when it comes to paying players in greenbacks.
A few of the losers
The losers from the rising loonie are basically anybody who has to compete not only with American producers but also the rest of the world, said Porter.
Just as a stronger loonie makes it easier for Canadian businesses to buy items denominated in U.S. dollars, it also makes it tougher for our industries to sell to U.S. customers, whose greenback doesn't go as far as it once did.
"It does hurt the competitiveness of [Canadian businesses], whether it's manufacturers or the tourism industry here in Canada," said Porter.
Canadians with investments in the U.S. also face the prospect of diminished returns even if their investments are going up in value.
"The other loser that people don't talk about a lot is folks who have invested in U.S. assets, whether it's real estate or in U.S. equities. If they aren't hedged, their investments have actually suffered as a result of the rise in the Canadian dollar," Porter said.
That factor could take on added importance, given recent reports that Canadian investment in U.S. real estate recently hit an all-time high. According to a recent report from the U.S.-based National Association of Realtors, Canadians spent $19 billion US between spring 2016 and spring 2017 on U.S. real estate.