The Canadian dollar weakened to reach its lowest point in almost two years on bets the U.S. currency will strengthen when the Federal Reserve ends monetary stimulus.
After steadily dropping last week, the Canadian dollar fell 0.3 percent on Monday, June 24, reaching its lowest level since Oct. 5, 2011. One loonie buys 95.39 U.S. cents.
While down about 5 cents from February, the drop isn't large enough to have a significant impact on Canadians shopping in Whatcom County, said Chris Lawless, chief economist for British Columbia Investment Management Corp. in Victoria, B.C.
"Border traffic should still be busy this summer," said Lawless, noting that the Canadian currency would need to go down 10 to 15 percent before it would have a real impact on the savings Canadians see in local retail goods, particularly gasoline and milk.
Bill Gorman agreed, saying that in his experience the Canadian dollar would need to drop to under 90 cents before it has a cooling effect on Canadians shopping in Whatcom County.
"We actually saw a pretty good lift during the construction of the (Skagit River) bridge," said Gorman, interim executive director at the Bellingham/Whatcom Chamber of Commerce & Industry. "Room stays at hotels are also up."
Lawless said two factors behind the recent weakening of the loonie are the expected rise of the U.S. dollar and fears that China's economy is slowing down. Fed Chairman Ben Bernanke's recent announcement that the U.S. may begin reducing monthly bond purchases this year has investors expecting the U.S. dollar to strengthen, hurting the Canadian dollar.
"The Fed hasn't really changed its tune, but the market is reading this announcement differently," Lawless said.
With the Chinese stock market dropping significantly in the past week, investors are concerned about China's economic growth slowing. Lawless said many investors view Canada as a commodity-rich country, and if China weakens, so will Canada's export market.
"We (Canada) have actually had better economic data lately, but these are two whammies for the Canadian currency," said Lawless. He expects the Canadian dollar to remain in the 90-cent to 95-cent range through the summer.
Investors shouldn't overreact to the U.S. central bank's plans to reduce the pace of asset purchases, Fed Bank of Dallas President Richard Fisher said in an interview with the Financial Times. Investors behaved like "feral hogs" after the June 19 comments by Bernanke, he said, according to the newspaper.
"He's trying to reinforce that they're still easing, so that's something that's going to weigh a bit on the U.S. dollar," said Eric Viloria, senior currency strategist for Gain Capital Group LLC, by phone from New York.
Bloomberg News contributed to this story.