KALISPELL, Mont. – Fewer license plates from Canada are showing up in northern Montana as the Canadian dollar continues to weaken and make shopping trips to the U.S. more expensive.
As of Aug. 31, the U.S. dollar was worth $1.32 in Canadian currency, the strongest the U.S. dollar has been in at least five years.
The Canadian dollar is tied to the commodity market, unlike the U.S. greenback. So when oil prices began falling this summer, dipping below $40 a barrel for the first time since 2009, the Loonie followed suit.
Patrick Barkey, the director of the Bureau of Business and Economic Research at the University of Montana, said the drop in oil prices is the second gut-punch the Canadian dollar received, since the price for natural gas is also low.
“Oil is just the second shoe to drop there,” Barkey told the Flathead Beacon (http://bit.ly/1UziCR0).
Already, some of the oil companies in Canada are cutting back. In March, Schlumberger, one of the world’s largest oilfield services and equipment companies, closed its operations in Medicine Hat, Alberta.
In Montana’s Flathead Valley, that will likely lead to fewer shopping sprees from Canadian buyers because they’ll only search out the essentials for their trip, Donna Townley, an economist at the University of Lethbridge in Alberta, said
Restaurants will probably retain business but retail will suffer, if it hasn’t already, she said.
At the Costco in Kalispell, where Canadian customers make up 10 per cent of the total sales, their absence has been noted.
Warehouse manager Greg Gillingham said sales to Canadian customers are down about 30 per cent since last December.
“It’s quite a bit of money,” Gillingham said. “It’s definitely affected us.”
Barkey, of the BBER, said not only will it affect retail goods but the construction and real estate industries might feel the sting of fewer Canadians buying or building second homes here.
Townley said businesses catering to Canadians in higher income brackets, such as medical tourism, won’t likely be affected as much, because those visitors have the cash to spend.
Several factors still undetermined, such as the upcoming Canadian elections and the U.S. Federal Reserve decisions on potentially increasing interest rates in September, will affect the currency in both nations.
If the Canadian currency continues to fall, Townley said, investors will sell their Loonies and buy U.S. dollars. And as oil prices continue to fall, speculators go back to the “safe haven” of the greenback, she said.
“We have no control,” Townley said. “Those speculators dominate the market.”
Barkey said he expects the effects of the low oil prices to hit in North Dakota and eastern Montana as well, considering that oil producers there locked in prices when they were still high.
“There’s been a delay before many of them saw the full brunt of the price declines,” Barkey said. “It’s just a delay though.”
Information from: Flathead Beacon, http://www.flatheadbeacon.com