Canadian dollar drops to 77 cents U.S.

Canadian dollar coins, also known as "loonies," are shown with a U.S dollar bill.
Canadian dollar coins, also known as "loonies," are shown with a U.S dollar bill. Associated Press

The Canadian dollar sank to its lowest level in nearly 11 years as the Bank of Canada cut a key interest rate to try to restart a sluggish economy.

The loonie was hovering around 77 cents compared to the U.S. dollar at the end of the trading session on Wednesday, July 15. It hit the lowest level for the Canadian dollar since since September 2004. It was a one-cent drop from the day before and came after the Bank of Canada announced it was lowering its benchmark overnight interest rate to 0.5 percent.

While a one-cent drop itself won’t have a big impact on cross-border traffic, the overall weaker loonie could lead to further declines in cross-border shopping in Whatcom County, said Paul Storer, a professor in the economics department at Western Washington University.

The response to the lower loonie shows up most in same-day trips to the U.S., according to a study released last month by the Business Council of British Columbia. By March 2015, southbound same-day border trips were down 28 percent compared to two years earlier, according to the study, translating into 148,000 fewer short-duration trips each month.

The weaker Canadian dollar doesn’t seem to have as much impact yet on overnight travel to the U.S., according to the report. in March 2015, the number of B.C. vehicles making trips in the U.S. that last more than two nights was down just 4 percent compared to two years earlier.

Several factors have slowed the Canadian economy in the first half of 2015, including low oil and commodity prices, said Chris Lawless, chief economist at British Columbia Investment Management Corp. in Victoria. It led to a contraction in gross domestic product in Canada during the first quarter and possibly the second quarter.

Lawless doesn’t consider Canada to be in a recession at this point, because the slowdown is not that widespread beyond the oil and commodity markets. It’s also expected that Canada’s GDP will grow in the second half of 2015.

“People are still spending and borrowing money,” Lawless said.

Storer added that much of the Canadian slowdown probably would be concentrated in Alberta because of the decline in oil prices.

Lawless did note that it may be a while before the loonie strengthens significantly against the U.S. dollar. If the U.S. raises interest rates as expected later this year, that would further increase the value of the currency, leading to an even weaker loonie. Oil prices also could remain low if a deal is reached with Iran that would lift an oil embargo, putting more supply on the global markets.

“I think it could remain at 75-80 cents for the next couple of years,” Lawless said.

The one potential bright spot for Canada is the U.S. economy. If it continues to improve, Canada could get a boost in non-energy export sales because the U.S. is a significant trading partner.

The weaker loonie also means Americans can find some deals in Canada, particularly in hotels and restaurants, Lawless said. He noted that in Victoria, hotel room and occupancy rates are up, with many of the new visitors coming from the U.S.

Reach Dave Gallagher at 360-715-2269 or dave.gallagher@bellinghamherald.com.