Loonie's Rise Latest Sign Of Our Dollar's Fall

Loonie's rise latest sign of our dollar's fall
U.S. tumble affects everyone from shoppers to investors

http://seattlepi.nwsource.com/busine...adollar21.html

9/21/2007

The American dollar is tumbling around the world.

On Thursday it reached parity with the Canadian dollar for the first time in 30 years and hit its lowest level yet against the euro, also dipping relative to the British pound and hitting a nine-year low against the Indian rupee.

Parity means one Canadian dollar buys one U.S. dollar, so a bottle of maple syrup could cost an American as much in Toronto as it does in New York.

Ambika Beck, an admitted fashion addict who works as an administrative assistant at the University of Washington, said she used to zip up to Canada for shopping trips with her boyfriend.

Victoria, B.C., offered streets lined with vintage clothing at dirt-cheap prices when they figured in the exchange rate. You could find leather jackets for $15. But those days are gone.

"There's no advantage any more -- only in that it's a beautiful place," Beck said. "I'm sure we'll continue to go, but not with the same motivation. It's not going to be the bargain it once was."

A lower U.S. dollar diminishes the spending power of American tourists, while attracting foreign visitors seeking cheaper accommodations, houses and shopping. The dollar's decline means Americans will pay more for imports and trips to Paris, Rome, Bangalore and Toronto.

It also may drive overseas demand for U.S. goods and help raise profits at U.S. multinational corporations.

As the U.S. dollar has weakened, "fewer U.S. shoppers and vacationers have gone up" north of the border, said Hart Hodges, an economist at Western Washington University. "It's about one-third as many now as in the mid-1990s."

Known as the loonie because of the bird pictured on the one-dollar coin, the Canadian dollar has been gaining on its American counterpart since hitting an all-time low of 61.76 U.S. cents in 2002. It rose as high as $1.0008 midday Thursday, sinking back to $0.9993 later in the day. It hadn't reached parity since November 1976.

This week the loonie rose sharply against the U.S. dollar after the Federal Reserve announced a dramatic half-point cut in its benchmark interest rates. The Bank of Canada, meanwhile, has kept its equivalent rates stable.

As a result, the spread between U.S. and Canadian interest rates widened, making Canada a more attractive place for German, Japanese, American and other foreign investors to put their money.

Many goods in Canada haven't been reduced yet to reflect the rising Canadian dollar.

"It's going to take some time before it trickles down to us," said Linda An, a Canadian who calls herself a shopaholic. "Shopping, especially for big-ticket items, is great now in the U.S."

At Bellingham's Bellis Fair mall, long a destination for Canadian shoppers, customers from north of the border are walking out of Target with "a lot more than they used to -- as many as several shopping carts full," said mall marketing manager Cara Buckingham.

The mall retailers enjoying the largest year-over-year sales increases -- into the double digits some months -- are those without a presence in Canada, she said. That includes Target, Bath & Body Works, Hollister and Aeropostale.

Though many mall merchants once accepted Canadian money in payment, few do so now, and "I don't think they will again at this point," Buckingham said. She predicted that difficulties in training employees and recognizing counterfeit money would discourage them.

At Whistler Blackcomb ski resort in British Columbia, bookings for this winter by U.S. customers are up 19 percent compared with last year, said senior marketing vice president Stuart Rempel. That sounds high -- but bookings from within Canada are up 100 percent, and international bookings overall are up 32 percent.

The soaring loonie reflects the strong fundamentals of the Canadian economy, which has benefited from record world crude oil prices and strong demand for metals, coal, chemicals and grain. At the same time, the United States has been squeezed by a collapse of a big chunk of its housing market and a worsening credit crunch.

But the high Canadian dollar will hurt Canadian manufacturers that sell goods in the U.S. Canadian Auto Workers economist Jim Stanford warned that the automotive sector, largely based in Ontario, will lose hundreds of thousands more jobs if the dollar remains at current levels.

The U.S. housing market and credit problems prompted the Fed's dramatic action this week. The central bank is far less concerned about the value of the nation's currency, however, said Michael Woolfolk, senior currency strategist at the Bank of New York.

A lower currency typically fosters worries about inflation, but the U.S. dollar's decline over the last year has been too gradual for the Fed to consider intervening by raising interest rates, Woolfolk said.

The falling dollar could be good news for multinational corporations. That's because it makes American-made goods more affordable in international markets while making it harder for foreign manufacturers to undercut domestic competition.

On the other hand, it worries the U.S. government by scaring away foreign investors who help to finance the country's debt.

The weaker the U.S. dollar, the stronger business has been for Seattle's Clipper Navigation Inc., which operates the fast ferries between Seattle and Victoria.

"Some of our best years have been when the U.S. economy is softer, because people avoid taking longer, more expensive trips abroad and take shorter, more frequent trips to closer destinations," said general manager Darrell Bryan.