The Canadian dollar has sunk to a multi-year low, now trading below 90 cents U.S. The weaker Loonie has traditionally been good news for our manufacturing sector and bad news for cross border shoppers, but there have been some unexpected side effects resulting from the most recent slide that are taking Canadians by surprise.
Big Bank Profits Are Up
Each quarter, banks have been reporting higher profits despite the lagging economy. This is because of their major operations outside of the country. A lower dollar means revenue generated from foreign investment increases. Banks such as TD, Scotiabank, BMO and RBC all have major foreign operations. The profits from these are able to offset any losses felt domestically. TD, CIBC, RBC and BMO all reported higher profits this week for the last quarter.
Travel Surcharges On Top Of Fares
Airlines have tacked a surcharge onto their fares due to the lower dollar. Air Canada and West Jet have both raised their ticket prices, saying the falling Loonie is making business operations more expensive. In January Air Canada Vacations, Transat Holidays and Sunwing added a $35 per passenger currency surcharge to offset higher costs. Sunquest went a step further and raised their total packages prices to cover their higher costs of flights and hotels to sunny destinations.
Consumers Have Been Hit Hard
Many shoppers think higher costs are isolated to cross border shopping, but domestic prices could start to rise as retailers move to protect their margins. Businesses that rely on a strong Canadian dollar to export items for cheap from outside our borders will be the hardest hit. That cost will be downloaded to the consumer. Canada is an oil rich country, but we could still see gasoline prices rise as Brent Crude, the major trading classification for oil, is set in U.S. dollars. Canadians have already been feeling the pain at the pumps with a steady rise in prices in the last three months.
Snowbirds Costs Will Rise
Retirees who flock to sunnier U.S. destinations during the winter months are closely watching the performance of the dollar. Even if Snowbirds own a second home in a warm destination like Arizona or Florida, their incidental costs are rising. Condominium fees, groceries, restaurants and entertainment will all cost more. The average length of a trip to Florida for Canadians is 21 days, and these lengthy stays are costing Canadians thousands of dollars more. Despite this a new report by TD Bank say this won’t discourage retirees taking their annual trip down south as lifestyle is a bigger driver than economics for most.