Canada's currency complaint

The Canadian dollar continues to head south, creating bargains that are tempting Americans to head north.

Canadians are staying home this summer, while budget-conscious American tourists are exploring their northern neighbor in record numbers, taking advantage of an extremely favorable exchange rate.

The Canadian currency recently posted a slight gain against the U.S. dollar but fell back almost immediately to 65.39 cents, making a U.S. dollar worth more than $1.52 Canadian for the first time.

The huge price difference allows Americans to book a top-grade suite "at a price that makes them feel like they have a friend on the inside," says Gary Rigby, assistant general manager at the upscale Four Seasons Hotel in Toronto. The Globe and Mail newspaper recently compared the cost of a night on the town for a Canadian in New York with an American in Toronto, each using native currency. The evening, including deluxe hotel room, a fine meal, theater, baseball tickets and public-transit costs, would cost the Canadian more than $1,500 while the American's tab would be just $804.

The weakness of the "loonie" as Canadians call their $1 coin minted with an image of a loon, has pushed U.S. tourism to record levels, according to John Olsthoorn, spokesman for the Canadian Tourism Commission. "As the Canadian dollar supped past 72 cents U.S. in 1994, U.S. travel to Canada began to surge," says Olsthoorn.

American travel to Canada is up 10 percent this year and the trend is expected to continue through 2002. Canada also expects to see more Americans crossing the border for quick overnight shopping trips. Meanwhile, Canadian bookings to the United States are down by as much as 30 percent as budget travel packages begin to look more like luxury trips.

The currency difference is affecting other areas of life, too. Canadian universities, for example, are becoming much more attractive for American students seeking a low-cost, high-quality education. The University of Windsor in Ontario has cut tuition fates for American students from $7,000 a year to $3,500 in U.S. dollars. Even at that rate, it brings the university more than the roughly $5,000 charged to Canadian students.

Disgruntled Canadians, feeling the squeeze on everything from gasoline to imported shoes, have taken to calling the loonie "the northern peso" or "the Hudson Bay pig." But Prime Minister Jean Chretien so far has shrugged off currency traders' barbs. "It's not a question of being happy. It's a reality of life," said Chretien. "The dollar may be failing, but the economy isn't. It helps our exports, it helps our tourism industry."

Finance Minister Paul Martin also remains publicly optimistic, arguing that the economy has posted its best productivity increases since 1984, far outpacing the United States. His next budget, due in February, will contain more tax cuts and debt reduction, which economists believe will help.

But Sherry Cooper, chief economist at the Toronto-based Nesbitt Burns investment group, compares Chretien's remarks to a chief executive officer welcoming a record-low stock price: "It just encourages people to sell, sell, sell." Indeed, when resource industries are excluded, the Toronto Stock Exchange has seen the total value of all shares double during the last decade while the New York Stock Exchange has risen by nearly 250 percent.

Although the Canadian and American currencies have not traded at par since the mid-1970s, the Canadian dollar was worth about 90 cents as recently as 1992. The long slide since then has been prompted by investor jitters over separatism in Quebec, high government deficits, low interest rates, the recent Asian crisis and falling commodity prices.

The latest numbers (from spring) show that Canadian exports remain unchanged at around $17.5 billion. Analysts take this as a sign that the economy is slowing, making it unlikely the Bank of Canada will raise interest rates to defend the dollar any time soon.

COPYRIGHT 1998 News World Communications, Inc.
COPYRIGHT 2008 Gale, Cengage Learning