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Canada's soaring dollar a tourism roadblock

As the U.S. currency falls vs. the loonie, Canada is no longer the bargain destination it once was. But it’s great for Canadians making U.S. plans.

By SUSAN TAYLOR MARTIN
Published May 29, 2006


Can’t afford a vacation in Paris, where the dollar is worth just 78 cents against the euro? Or London, where the pound is so strong a dollar buys barely half of what it would in the United States?

For those wanting a cheaper, closer foreign destination, Montreal and Toronto have always been attractive alternatives. But even Canada is no longer the bargain it used to be for Americans.

In the past two years, the Canadian dollar, or “loonie,’’ has strengthened 25 percent against its U.S. counterpart, soaring to a value of 91.1 cents on May 9. That’s the highest it has been since 1978, when Jimmy Carter was president, Dallas made its TV debut and the world’s first test-tube baby was born in Britain.

The strength of the loonie — nicknamed after the national bird — is terrific for Canadians who winter in Florida, purchase vacation homes in the states or simply drive across the border to U.S. stores where the loonie buys a lot more shoes and clothing than it once did.

“It’s great news for snowbirds, that’s for sure,’’ says Michael MacKenzie, spokesman for the Toronto-based Canadian Snowbird Association.

More than two-thirds of the organization’s 80,000 members head to Florida each year and “a lot of them are senior citizens on fixed incomes who drive,’’ he says. “The higher the loonie goes, the better it is for traveling Canadians.’’

But it’s not so good for Americans or the Canadian tourism industry. Some experts think the two currencies could even hit parity by the end of the year, wiping out any financial advantage Canadian cities and resorts have in luring visitors from south of the border.

“Visitation from the United States to Canada is declining, so our concern is to understand the factors influencing this, and one of those is the exchange rate,’’ says Andrew Clark, spokesman for the Canadian Tourism Commission in Vancouver.

The commission’s challenge is to make Canada — so familiar to Americans in many ways — “intriguing and exciting,’’ Clark says. “The American dollar is still stronger, so there are still opportunities.’’

Just a few years ago, the loonie bottomed out at 62 cents against the U.S. dollar, meaning Canadians in the United States had the same feeling Americans now have when they visit London: a sense that half their money disappears the minute they step off the plane.

“I’ve been planning to have a holiday in the states for years, but I haven’t been doing it because of the exchange rate,’’ says P.N. Rowe, an economist at Carleton University in Ottawa. Rowe says he may finally get his U.S. vacation this year, although “I’m waiting for the Canadian dollar to go up a bit more.’’

 Investors have been shying away from the U.S. dollar because of concerns about record budget deficits and other factors. At the same time, the loonie is ever more attractive because the already-strong Canadian economy has been bolstered by high prices for oil, gold and other commodities Canada exports.

“If the negative momentum toward the U.S. dollar is strong, like it started to become in the last two weeks, there’s no telling where the Canadian dollar would stop,’’ says Chuck Butler, currency expert at Jacksonville-based Everbank Financial Corp.

“You’ve got these high oil prices, which I don’t think are going to back off, they have wonderful budget and trade surplus numbers — these are things that really attract foreign investors.’’

However, the strong loonie is causing concerns in Canada’s tourism industry, which also suffered after the Sept. 11 attacks when tightened security caused huge tie-ups at the border. As the loonie rose against the dollar between March 2005 and March 2006, travel from the United States to Canada dropped more than 10 percent.

The exchange rate makes little difference to affluent travelers who tend to take longer vacations, but “it has more of an effect close to the border,’’ says Clark of the tourism commission. “The day trips into Canada, the overnight drive vacations — these people are staying domestically” in the United States.

Toronto, Canada’s largest city, has seen a 15 percent slump in U.S. tourism in the past five years despite world-class dining, shopping and other attractions. This summer, it is aggressively courting Americans with package deals.

For $145 U.S. per person, visitors get a one-night hotel stay plus breakfast, admission to the Hockey Hall of Fame or another major attraction, and a ticket to the critically panned but popular musical adaptation of Lord of the Rings.

 The last time the loonie was so strong was in the mid ’70s when Rowe, the Carleton economist, remembers his car breaking down while he was in the United States. He had only loonies on him, but the garage owner, who was planning a trip to Canada, took them in payment because they were worth more than the U.S. currency.

“I was happy because I got a new battery and he was happy because he got cheap Canadian dollars,’’ Rowe says.

 Susan Martin can be reached at susan@sptimes.com.

[Last modified May 29, 2006, 21:22:12]


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