The historic Brexit vote will mean another hit for Whatcom County retailers as the Canadian dollar is expected to weaken.
The Canadian dollar lost more than a cent on Friday, June 24, following the vote by the United Kingdom to leave the European Union, settling at just under 77 cents compared to the U.S. dollar.
The immediate reaction is that everyone will run for safety. In the short term, that will impact the Canadian dollar.
Steven Globerman, Western Washington University professor.
The loonie’s drop following the vote happened because it created a fair amount of uncertainty in the financial markets. When there is this much uncertainty, investors turn to what’s considered more stable investments such as U.S. bonds, said Steven Globerman, an international business professor at Western Washington University. A stronger U.S. dollar generally means other currencies —such as the loonie — weaken.
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“The immediate reaction is that everyone will run for safety,” Globerman said. “In the short term, that will impact the Canadian dollar.”
Globerman said that once the shock and uncertainty of the Brexit vote dissipates, what happens to the Canadian dollar will depend more on oil prices. The price of oil initially plunged in overnight markets but was able to erase some of those losses on June 24, settling at around $47.50 a barrel, according to The Wall Street Journal. If oil prices rise, the loonie also will rise because oil is a significant export product for Canada.
Before that happens, though, the Canadian dollar could drop another four cents because this is a large-scale shock for global growth, which would hurt exports, said Bipan Rai, head of foreign exchange at the Canadian Imperial Bank of Commerce in Toronto, in a June 24 Bloomberg article.
Many Whatcom County retailers have already experienced slower sales in 2016 because of the weaker purchasing power for Canadians. Southbound border traffic is down nearly 13 percent in the first five months of 2016 compared to the same period as last year, resulting in 683,502 fewer visitors.
At this point it is unclear what impact Brexit will have on other aspects of the local economy in relation to Canada. Jim Pettinger, who operates the cross-border sales and distribution company UCan Trade, Inc. in Ferndale, said he’s not making any changes at this point since no one is really sure what will happen.
“It’s one of those things where you have to wait and see how it shakes out,” Pettinger said.
In the longer term, Globerman said this vote will bring more concern about the outlook of global integration. There is more worry about world trade, and it is showing in this referendum, he said.