Falling loonie, oil price slide are bad news for consumers

The Canadian dollar fell Monday to its lowest level in more than a decade, making imported goods and winter beach holidays more expensive while blunting the impact of cheap oil on the price consumers pay for gasoline.

“The bad news is when crude drops, so does the value of the currency and we lose part of our purchasing power,” said consumer advocate and former MP Dan McTeague.

The Canadian dollar was down 0.8 of a U.S. cent, closing at an even 74 U.S. cents, its lowest level since June 2004. The Toronto Stock Exchange also closed down 316 points or 2.4 per cent, to 13,043.

The loonie’s slide came in response to further weakness in the global price of crude oil futures. The North American benchmark, West Texas Intermediate, fell 5.8 per cent to $37.65 (U.S.) a barrel Monday, its lowest close since the height of the global financial crisis in February 2009.

Canada’s economy is so tied to crude that the slowdown in the energy sector has driven the value of the Canadian dollar lower.

Many observers believe this could be a new normal for oil prices and the loonie, at least for the next few months, as the worldwide supply glut shows no signs of abating.

That’s bad news for consumers and also the wider Canada economy.

Oil production and stockpiles have reached all-time highs this year, according to the International Energy Agency.

“The bottom line is we’re looking for more of the same,” Daniel Yergin, vice-chairman of industry consultants IHS Inc., told Bloomberg.

“This points to a weak market going ahead. We’re also waiting for Iran to increase output, adding to the overhang.”

The Organization of Petroleum Exporting Countries, the world’s biggest oil cartel, isn’t helping to stem the oil supply glut. At a meeting on Friday, it decided to continue to ignore a daily output limit to control pricing.

The falling price of crude oil will bring some relief to Canadian commuters, but not as much as Americans are enjoying, economists said.

The difference in the currencies is costing Canadians 8 cents a litre in potential savings on lower prices for oil, McTeague said. That’s because crude and wholesale gasoline are both priced in U.S. dollars.

Still, Canadians should reap some benefit from the falling world price for crude, McTeague said, predicting gas at the pumps would fall by 2 to 3 cents a litre by Wednesday.

The dollar isn’t the only factor in pump prices, noted Robert Kavcic, senior economist with BMO Capital Markets. Refiners have been slow to pass along all of the savings from falling prices for crude oil, instead pocketing higher profits, he noted.

The lower Canadian dollar also makes travel outside the country more expensive, especially to destinations priced in U.S. dollars.

“What we’re finding is absolutely there is an impact,” said Stephen Smith, vice-president of marketing and loyalty for Canadian corporate and personal travel agency Vision Travel.

Cruise-ship lines, which price their packages in U.S. dollars, are coming up with special deals for Canadians to help soften the blow, Smith said.

The effect on all-inclusive resorts to sun destinations is “minimal” as they’re priced in Canadian dollars, he said.

On the flip side, Canada’s tourism industry is benefitting from an influx of Americans, said BMO’s Kavcic. Hotel bookings are up.

As well, Canadian retailers are seeing more American customers, while losing fewer Canadians to cross-border shops.

The lower dollar will make imported goods even more expensive. Canadians will feel the impact first at the grocery store, on fruits and vegetables imported from California and other sunshine states, said Pedro Antunes, an economist with Conference Board of Canada.

Other imported goods, such as furniture, household appliances, cars and some clothing, can take a year or more to feel the impact as suppliers use up existing inventories before passing on price increases.

Oil prices could remain below $40 a barrel for months, depending on how long the big producers can withstand the pain, said Colin Cieszynski, chief market strategist at CMC Markets.

The oil price drop adds to the woes in Alberta’s oilsands, which have been suffering since this time last year. That has led to slowdowns, shutdowns and layoffs in Canada’s energy sector.