Get Ready For a Lower Loonie

Lower Loonie

Interest rates and economic growth have taken a tumble this year – now, all eyes are on just how far south the Canadian loonie will go. Currently, the Canadian dollar is trading below 77 cents USD – almost an 11-year low. But that won’t be the extent of our currency’s pain, as economic forecasts on both sides of the border call for an even lower dollar.

How Low Could the Loonie Go?

In its latest outlook, the Bank of Montreal says the loonie could fall to below 75 cents USD in a few months’ time. American experts are even gloomier: in a recent report, the Bank of America is forecasting a 65 cent loonie. The most pessimistic forecast comes from John Johnston, the executive vice-president and chief strategist for Davis Rea, who stated in a recent interview with CTV News Channel that the loonie could plunge to 55 cents USD over the long term.

The Upside to a Lower Loonie

A lower loonie is theoretically great news for our struggling manufacturing sector, especially following reports that Canada is in a recession. A lower loonie could pull us out of this condition, as it reduces the relative price of products produced in Canada.

It also encourages foreign investment, because it’s cheaper for companies to do business here. It’s also great for tourism to Canada. Americans, especially, tend to flock to our cities to take advantage of a stronger U.S. dollar. Canadians as well, choose to stay home and spend tourism dollars on home soil whenever our dollar loses value, because that same vacation from last summer costs 25 per cent more, and nobody likes to pay more for the same.

The Downside to a Lower Loonie

The most obvious impact is on Canadians’ ability to travel as purchasing power shrinks even further south of the border. Snowbirds, especially, may be changing their minds about going south for the winter, but families may also choose to stay grounded this year.

Goods and services will get pricier on the home front too, especially at the grocery store. We can predict that the prices of groceries will rise, particularly in the winter, when the majority of our fresh fruits and vegetables are imported in to the country. Should Johnston’s forecast comes true and the dollar falls to 55 cents, all imported good including groceries will rise sharply.

How Can You Protect Yourself?

Johnston recommends Canadians start to diversify their investment outside of Canada. He suggests Canadians look outside their own borders at investment opportunities especially those in the U.S. Particularly if the U.S. Federal Reserves raises rates, U.S. investment would be much more attractive to Canadians. The rate hike by the FED is expected to happen as early as in the fall. Paying down debt now is also a good way to protect yourself, by owning lets it will be easier to free up more money in your budget to pay more for everyday consumer items.

Are you concerned about your purchasing power? Tell us in a comment, or visit us on Facebook and Twitter.

Related Topics

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

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