The Canadian dollar tumbled on Wednesday, Jan. 21, and that could mean fewer cross-border shoppers in Whatcom County.
In what many investors and economists consider a surprise move, the Bank of Canada lowered the benchmark interest rate target from 1 percent to 0.75 percent. This led to a weaker Canadian dollar, dropping to around 81 cents compared to the U.S. dollar. That’s down 5 cents from a month ago and down 13 cents since July.
Much of what is driving the move by the Bank of Canada and the loonie’s decline is falling oil prices, said Chris Lawless, chief economist at British Columbia Investment Management Corp. in Victoria. If oil prices remain around $45 a barrel, the Canadian dollar will probably stay in the 80-cent range, he said.
“Fundamentally, things have changed,” Lawless said. “If oil prices go back up to $60 (a barrel), the Canadian dollar could bounce back. But it’s hard to say what will happen with oil.”
Lawless said having the Canadian dollar this low would slow the number of Canadians coming into Whatcom County to do some shopping, but he said it would take some time. Residents not watching the currency numbers every day may continue to come down. Other factors would continue to attract B.C. residents into Whatcom County, such as pricing and product selection. One example is Target, which is closing all its stores in Canada. Once those stores shut down, the nearest Target for many Lower B.C. shoppers will be in Bellingham.
“The summer will be the test,” Lawless said, noting that is the busiest time of year for cross-border travel.
Hart Hodges, director of Western Washington University’s Center for Economic and Business Research, agreed that the most recent drop probably will mean measurable declines in southbound border crossings. He expects northbound crossings to increase as Whistler and other destinations are now less expensive for Americans to visit.
“I think on balance we’ll see a decline in crossings,” he said.
The strength of the loonie tends to go in cycles, and Canada has had a long stretch with a strong currency. Except for a five-month period during the global financial meltdown in late 2008 and early 2009, the Canadian dollar has been above 80 cents since June 2005. Its peak during this run was in November 2007, when the Canadian dollar was $1.07 compared to the U.S. dollar.
A weaker Canadian dollar is not all bad news for the Whatcom County economy. Recently Canadians have been making more inquiries about expanding into the U.S. market by opening a facility in Whatcom County, said Guy Occhiogrosso, president of the Bellingham/Whatcom Chamber of Commerce & Industry. The reason for this interest is because Canadian firms can collect the stronger U.S. dollar by selling products in this market.
Jim Pettinger is expecting an uptick in interest from Canadian companies seeking to enter the U.S. market. Pettinger, president of International Market Access in Ferndale, regularly organizes seminars in Canada about doing business in the U.S. He said having the Canadian dollar in the low 80-cent range is ideal for this trend. Anything below 80 cents and it becomes challenging for Canadian companies to pay for the initial capital costs.
“Our message to Canadians interested in entering the U.S. market is to do it now,” Pettinger said, noting that it takes time to get everything in place to make it happen.
If the Canadian dollar stays low, Occhiogrosso believes retailers can sustain the drop in Canadian traffic. What he hopes will happen is that local residents will pick up some of the expected drop-off in retail sales. He noted the U.S. economy continues to improve, and local residents are benefiting from the low gas prices. With fewer Canadians at Whatcom County stores, it also might mean that those who went to shop in Skagit County because the local big-box stores were too crowded would return to shopping in Whatcom County, he said.