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With sinking loonie, Canadian consumers expected to view cross-border shopping with caution in 2014

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MASSENA - Economists predict the Canadian dollar will continue its downward slide this year, a trend that will signal native travelers to shop less on this side of the border but encourage New York businesses to import more products because of lower prices.

The loonie was down 8 cents to 0.9155 U.S. on Thursday at the close of trading, its lowest level since 2009.

The exchange rate disparity is expected to have an immediate impact on Canadian consumers who make shopping trips to Northern New York and stay in hotels here, said Beverly J. Lapham, professor of economics at Queen’s University, Kingston.

“If you look at the historical data, Canadians respond quite strongly to changes in the exchange rate,” Ms. Lapham said. “So if the Canadian dollar becomes stronger and the U.S. cheaper, it will reduce the large number of Canadians who now cross the border to shop. I expect a fall-off in business at all kinds — restaurants, shops and hotels — and they may not decide to take multiple-day trips that allow them to legally take back more goods.”

Though the falling exchange rate will be a disincentive to cost-conscious Canadian shoppers, Ms. Lapham said, they still have plenty of reasons to visit retailers across the border. Lower sales taxes, for example, and the wider variety of big-box stores and businesses are strong incentives that will keep them motivated to shop here.

For Canadian consumers, “the main thing the wider variety of shopping opportunities in the U.S., both in terms of price and the variety of (merchandise) available,” she said. “But Americans don’t usually shop in Canada because there’s not as much to buy. We expect to see business pick up here a little bit from Americans, but they don’t respond to movements in the exchange rate very much. The awareness goes in one direction.”

The loonie has been roughly on par with the U.S. dollar for about the past six years, but that was an unanticipated trend that economists never expected to last, Ms. Lapham said. According to the economic concept of purchasing power parity, the Canadian exchange rate should theoretically settle in the low 80s to have an equivalent purchasing power of the U.S. dollar, she said.

But historical data suggest the theory is far from reliable, Ms. Lapham said.

Economists “have said that’s where it should settle in the long run, but we’ve had long periods of time when the Canadian dollar is not at its parity level,” she said. “But I think the early drop this year signals that it’s probably going to continue to fall. There’s no obvious reason to think that it’s not, because data suggested the looney was going to fall at some point.”

The weaker loonie is excellent news from the perspective of Canadian manufacturers who will have more demand for U.S. exports, according to Dr. Martin D. Heintzelman, economics professor at Clarkson University, Potsdam. He is the director of the University’s Center for Canadian Studies.

“Costs will go down for manufacturers who are importing supplies from Canada, and that’s definitely good to the extent that they have other manufacturers they’re competing with who aren’t doing so,” Mr. Heintzelman said. “Those Canadian-manufactured goods will be cheaper for customers.”

If the Canadian economy continues to weaken as expected, the loonie likely will continue its fall in value this year, Mr. Heintzelman said.

“The Canadian dollar has been strong for the past five to six years, relative to its historical levels,” he said. “Back in the 1980s it was 0.67 to the U.S. dollar, and for the past six years it has been almost on par.”

History shows that if the loonie continues to fall, it could spur a major reduction in the number of Canadian visitors who cross the Thousand Islands International Bridge, according to Gary S. DeYoung, executive director of the 1000 Islands International Tourism Council.

When the loonie “dropped into the 1990s, there was a huge impact,” Mr. DeYoung said. “The trend in the Canadian exchange rate tracks very closely with the amount of Canadian traffic across the border. If the Canadian dollar bounces in the 90 (-cent range) then it won’t be as noticeable, but if we see it slide like it did in the ’90s, there could be a major impact.”

Partly because of the strong loonie, the number of Canadians who traveled over the Thousand Islands International Bridge climbed steadily from 2007 to 2011, Mr. DeYoung said. But the number of travelers stayed roughly even in 2012 and 2013, he said, and predicted that numbers won’t climb this year because of the weaker loonie. About two-thirds of the traffic at the bridge is drawn by Canadians traveling south into Northern New York.

“The days of seeing double-digit growth are probably done, but we’ll still have a strong Canadian market here,” Mr. DeYoung said. “Americans should be taking more trips across the border (due to the weaker loonie), but they don’t watch the fluctuation as much as Canadians. It will come into play when they’re booking a hotel and deciding when to stay when visiting the region.”

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