Low Loonie Is Bad For Canadians, Good For Vermont Tourists

Feb 3, 2015

If you're considering visiting Montreal or any other parts north from the U.S., right now might be a good time, even if it's not exactly a warm weather getaway for winter. The reason is the bang you'll get for your buck. The Canadian dollar has fallen to right around 80 cents. That's the lowest it's been since 2009, when the country was in recession.

The main reason for the decline is the fall in oil prices, said Jeff Ayres, a political scientist at St. Michael's College.

"You wouldn't call Canada a petrol currency as overtly as you would, say Russia," Ayres said. "But its currency is very much tied to the price of oil, the price of commodities and oil has gone down so fast. The price of oil has declined over 60 percent since its peak this past June, and Canada's very dependent on the oil and natural gas industry."

Things are flipping around in the Canadian economy, Ayres added. Central Canada may benefit while the western part of the country seems to be going into a recession.

"The price of oil has declined over 60 percent since its peak this past June, and Canada's very dependent on the oil and natural gas industry." - Jeff Ayres, St. Michael's College political scientist

There are also impacts of central banks to consider. "The bank of Canada shocked markets in the past week or so when it reduced its interest rate by a quarter basis point. Nobody saw that coming and it was a reduction that was in reaction to the decline in oil because of concern about deflation and possible recession in Canada," Ayres explained. "At the same time, our United States economy seems to be doing quite and it looks like the Fed [Federal Reserve] might even raise rates later this year, so that's putting even more pressure on the dollar."

With a federal election coming later this year in Canada, Ayres said there may be a political impact for the Conservative government of Primer Minister Stephen Harper.

Vermonters like it when the Canadian dollar is low, because many spend time north of the border for vacations and weekend in Montreal. Right now, those activities are much less expensive. But Vermont is also dependent on Canadian tourists, and when the dollar is low some Canadians try to find ways to spend less.

"There's hundreds of thousands of snowbirds in the south and they're probably having a little bit of sticker shock because it's more expensive for them down in the south," he said. "It certainly affects the average Canadian when they consider the ease of coming across. And when the dollar was at par with the U.S. dollar it certainly has an impact, but it's good for us."

"It certainly affects the average Canadian when they consider the ease of coming across."

The low Canadian dollar has affected the National Hockey League, too. "NHL players are paid in U.S. dollars, so right now with a 20 percent drop in the Canadian dollar, [that] has put a lot of pressure on the seven Canadian NHL teams," Ayres said. "Montreal and Toronto, there's a lot of revenue that comes from those two teams, but it's quite possible that there'll be a squeeze on Winnipeg, Ottawa, some of the smaller market teams and the salary cap may go down. So there's a lot of people watching the value of the Canadian dollar who have an interest in the NHL."

There are different predictions for the fate of the loonie. One bank projects that it will hit 75 cents by the middle of this year, another says by 2017 it will go down to 70 cents. But no one is saying it will come back up any time soon.