Canadians' overseas spending power has taken a hit, but the plunge in the Canadian dollar after the central bank cut interest rates on Wednesday to try to revive a sputtering economy is being cheered by a wide array of businesses.
Canadians’ overseas spending power has taken a hit, but the plunge in the Canadian dollar after the central bank cut interest rates on Wednesday to try to revive a sputtering economy is being cheered by a wide array of businesses.
The tourism sector, along with export-oriented manufacturers and resource companies were among those applauding the Canadian dollar’s six-year low on Thursday after the Bank of Canada’s 25-basis-point rate cut to 0.5 percent, which was triggered largely by last year’s collapse in the price of oil, a major Canadian export.
At Abigail’s Hotel, a boutique hotel in Victoria, British Columbia, business was already looking good before the rate cut, the second one this year. Now, American visitors, who make up 40 to 50 percent of the clientele, will get more for their money, while more Canadians will visit the Pacific Coast city instead of traveling abroad.
“Business is the strongest it’s been in a long, long time. I can echo that that’s the sentiment of the industry,” said Abigail’s general manager, Nick Saklas. “Canadians are lot more reluctant to head south of the border.”
The Bank of Canada’s efforts to revive an economy that likely shrank in the first half of 2015 have spurred some analysts to predict the Canadian dollar will soften toward 75 U.S. cents in coming months. It traded just above 77 U.S. cents on Thursday.
That’s down about 20 percent from a year ago, when it was at 93.10 U.S. cents.
Bank Governor Stephen Poloz is especially keen to see non-energy exports pick up. Some manufacturers say a weaker loonie can only help.
They include Clearpath Robotics, an Ontario company that makes robotic systems. It expects to benefit from export sales priced in U.S. dollars, while it pays most of its costs in local currency. “We improve our margin,” said Chief Executive Bryan Webb.
Canadian auto manufacturers should also benefit as they compete for new investment with low-cost U.S. states and Mexico.
The currency drop is even softening the blow of low crude prices for oil and gas producers, whose revenue is largely in U.S. dollars, while expenses are in Canadian dollars.
Tourism is clearly a bright spot, even for high-end operators, such as the Clayoquot Wilderness Resort in British Columbia, that serve less cost-conscious customers.
“This is our best season ever,” said Gary Bedell, Clayoquot’s general manager. “And I would suspect that part of it is because the people love it here, and there’s obviously got to be some kick from the exchange rate.”
Canadian spending on tourism at home rose 1 percent in the first quarter, its biggest increase in a year, according to Statistics Canada.
The latest data available shows travel by Canadians abroad fell in April, largely due to a 1.2 percent decline in same-day car trips to the United States. The number of same-day trips in the other direction rose 0.9 percent.
Among the currency losers are retailers that import their goods. Those who import a lot will likely pass on the added costs to consumers eventually, said Michael LeBlanc, a senior vice president at the Retail Council of Canada.
That said, retailers will benefit from sales that would have otherwise been lost to cross-border shopping.
Another worry is that the economy could be hurt if international investors dump Canadian assets. Foreign investors sold their holdings in Canadian securities for the first time this year in May, according to data on Thursday.
“The market had started to have less confidence in the Canadian dollar and Canadian assets,” said Hosen Marjaee, senior managing director, Canadian fixed income, Manulife Asset Management. “With expectations of weaker Canadian dollar, foreigners have less interest in buying our securities across the board.”