GO
Loading...

Sense on the Dollar: Loonie Tunes

If you really want to understand the implications of the falling U.S. dollar, make a run for the border—the U.S./Canadian border, where currency fluctuations are felt just about everywhere money changes hands.

American Dollar and Canadian Dollar
AP
American Dollar and Canadian Dollar

Historically, the U.S. dollar has more often than not been stronger than the Canadian dollar—affectionately known as the Loonie. But the two currencies have recently approached parity, and the implications are widespread.

Border crossings between the two countries are the lowest they have been since they began keeping records in the 1970s.

The lull is not entirely due to the currency situation. Border controls were tightened considerably after the September 11 attacks, and this year for the first time, a passport or an enhanced driver’s license is required for visitors to either country. But the currency situation is a major factor, according to business leaders on both sides of the border.

“Six years ago, a U.S. visitor with $100 would have $150 Canadian dollars to gamble with,” says Kevin Laforet, President and CEO of Caesar’s Windsor Casino, across the border from Detroit. “That’s 150 pulls on a $1 slot machine.” Today, the number is closer to 105, eliminating much of the competitive advantage that once made the Windsor casino Canada’s biggest tourist attraction—even bigger than Niagara Falls.

The situation might help the three casinos across the river in downtown Detroit, but they too are suffering in the auto-industry-dominated Michigan economy. Not only are U.S. residents staying away, but Canadians are staying home too—daunted by the border crossing and hit with a downturn of their own, caused in part by the strong Canadian Loonie.

The implications spread far beyond tourism. Canada’s economy is dominated by exports of natural resources, and the United States is Canada’s largest trading partner. The strong Canadian dollar hurts the country’s exports by making them more expensive. And the higher prices, in turn, could exacerbate inflation pressures in the U.S.

On Tuesday, Canada’s central bank took unusually aggressive steps to stem the Loonie’s surge, warning that the currency’s rise could “fully offset” recent signs of economic growth.

The blunt language, seen as a signal that the central bank will not raise rates anytime soon, caused the Canadian dollar to fall more than two percent against the U.S. currency, its biggest drop in months. But few expect tough language alone to reverse the trend.

The Caesar’s Windsor Casino last year completed a $400 million renovation, adding a 5,000-seat theater for concerts and adopting the Caesar’s brand. The hope is that the upgrades will help the Casino replace some of the competitive advantage it lost with the fluctuating currencies.

The addition of big name acts like Celine Dion and Billy Joel is helping, officials say, and in that regard, the currency situation is a plus: most of the acts come from the U.S., and the weak dollar makes hiring them more affordable.