A Lower Loonie Reality: The Consumer Impact

Living with a Lower Loonie Reality

The Canadian dollar has hit a 13-year low, dipping below 69 cents USD. As a result, some Canadians (for good reason) are panicking. Here are a few statements I’ve heard recently: What does a low loonie mean for my grocery bill? Where should I invest my money? And – this one’s my favourite – how low can it go? The answer really depends on who you ask, but the consensus is Canadians should get used to the reality of a lower loonie for the next year.

Also read: No Change From the Bank of Canada in January>

The Expert Opinion

Bloomberg’s top-ranked forecaster for the Canadian dollar, David Doyle, believes the loonie will fall to a record low of 59 cents USD by the end of this year. That means it would cost $1.69 CAD to buy one U.S. Dollar. That’s the worst case scenario, but the Canadian dollar depends very much on the price of oil, which is currently testing record lows at $29 U.S. a barrel. However, experts are optimistic oil prices will rise towards the end of the year, however; Royal Bank CEO Dave McKay expects oil to start moving back towards the $50-USD-range per barrel over the next 18 months.

A Tough Consumer Outlook

There’s no doubt consumers like you and me are losing out big time because of the lower loonie. Grocery prices are up – there has been much news made over an $8 cauliflower. All fruits and vegetables are costing more, such as blueberries, grapes and bananas.

This is due to a combination of weaker buying power and poor growing conditions. During the winter, 80 per cent of our fresh fruits and vegetables come from California, which has been plagued by persistent drought and lower crops. Grocers are forced to pay higher prices for imported items, because of the low loonie and the decrease in supply. For these reasons, the University of Guelph’s Food Institute estimates Canadian households will spend $345 more on groceries in 2016 compared to last year.

Also read: 4 Ways to Cope With Rising Grocery Prices>

Snowbirds to Feel the Squeeze

If you travel regularly to the U.S., or live there for part of the year, the drop in purchasing power may be a challenge. If you already own a place in the U.S. you may not feel as much of a pinch, but those renting hotels or apartments down south can expect to pay at least 40 per cent more. The best advice for snow birds is to lower expectations: don’t expect to stay in the same five-star hotel you did last year and consider more temperate Canadian destinations like Victoria B.C.

INFOGRAPHIC: Canadians Are Top Foreign Investors For U.S. Real Estate>

It’s Not All Doom and Gloom

Not everyone is losing out due to the low loonie. Canada’s manufacturing sector can expect to get a boost as all exported items to the U.S. now come with a discount for Americans. This could mean a higher volume of sales for businesses that sell to the U.S.  Tourism is also expected to get a boost as Americans travel to Canada because of their stronger dollar.

What Should Consumers Do?

There’s no guarantee if the dollar will get weaker or start to gain strength. If you’re planning on travelling to the U.S. later in the year and are confident the dollar will get stronger, then wait to book accommodations. If you see the loonie sliding more, book now to avoid paying even higher exchange rates in the future. The same is true for U.S. investments and any goods and services you may be purchasing. The loonie could slide further or start to strengthen but the best advice is to always make your personal finance decision based on what you know now, not what the forecast is telling you.

Related Topics

Economic News / Personal Finance / Personal Finance News / Your Budget

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