Elaine Thompson
Armed with a pumped-up dollar, Canadian consumers are border hopping to hit the U.S. malls again.
It's not yet the level of 2007, when the loonie hit $1.10, but it has been climbing steadily and is expected to continue.
Overnight travel by Canadians to the United States climbed 3.2 per cent in November, while overnight car trips were up by a sharp 6.2 per cent, to 1.1 million, Statistics Canada reports. Same-day trips by car - you drive to Buffalo, N.Y., or Bellingham, Wash., and load up - have also climbed steadily.
Such travel spiked in 2007 when the Canadian dollar really soared.
"Armed with a lofty loonie (a US$0.987 monthly average), Canadians headed south of the border in droves during November, experiencing 'Black Friday' discounting first hand," said senior economist Michael Gregory of BMO Nesbitt Burns. "This trend is likely to pick up in the months ahead as the currency has since strengthened above parity, and as America's warmer southern climates attract vacationers and home buyers."
Indeed, the dollar is projected to remain around parity, or higher, for quite some time, prompting outings to the U.S. mall as cross-border shopping ramps up again.
Just this week, strategists at UBS AG boosted their outlook for the loonie, they believe it's "slightly overvalued" against the U.S. dollar.
Calling it a "smaller" currency - the nerve! - strategists Thomas Flury, Giovannie Staunovo, Teck Leng Tan and Katherine Klingensmith forecast a loonie worth about $1.05 U.S. in 12 months.
"We now think some smaller currencies - Canadian dollar, the CAD, the Swedish crown, or SEK, and the Norwegian crown, the NOK - have more appreciation potential," they wrote.
They believe the brighter U.S. outlook and the Federal Reserve's huge quantitative easing program all spell good news for the Canadian economy, while an expected hike in interest rates this year also plays into the picture.
"As long as the CAD appreciates gradually, we expect no overt concern from Canadian officials," they wrote.
They expect further challenges for investors in the overall currency markets, saying the money of some commodity-producing countries and some emerging markets have run up rapidly and now are expensive.
"Investors may find that buy-and-hold is not the best strategy in 2011," they added. "Instead, we suggest looking to range-trading ideas. At the moment, market conditions favour CAD, SEK and NOK more than for [the Swiss franc and Australian dollar]"
Of course, what's good for a Canadian shopper heading south to Target and the like may not be what's best for the overall economy.
Again yesterday, the Bank of Canada warned of the threat to exports from the high currency. Still, there's something to be said for a bargain in such times.
"But then again, Target's coming to Canada, so we can pick up Target stuff in a few years here," Mr. Gregory quipped.
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