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Weak Canadian 'Loonie' Worries Maine Retailers
02/07/2014   Reported By: Jennifer Mitchell

The Canadian dollar is on the way down. According to TD Economics, the "Loonie," as it's called, which has been on par with the U.S. dollar - or even higher at times - could be worth just 85 cents U.S. this summer. And whether that's a good thing or a bad thing depends on who you are and what you sell. Jennifer Mitchell explains.

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Weak Canadian 'Loonie" Worries Maine Retailers Listen
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So, Canada is about to take a ride on the dollar slide. "Clearly we're concerned that the loonie is now trading at about 89 cents to the dollar" - and expected to fall another 4 cents by June, says Bangor Mall General Manager James Gerety.

Gerety watches the exchange rate closely, because as cross-border buying power starts to favor Mainers once again, it is possible that more Canadians might choose to stay home and shop. But then again, says Gerety, there's more to the equation.

"The tax rate in Canada at 13 percent, certainly, is much higher than our sales tax here in the state, so that certainly is a factor," Gerety says.

Plus, there's the matter of consumer selection. Bangor has some shops and products that Canadians can't get at home. So how can Maine businesses predict what the weaker loonie will mean?

Part of the problem, says Gerety, is that what's known about consumer behavior is anecdotal; the mall's retailers haven't been out in the parking lot counting all the Canadian plates, or keeping records of who comes in or why.

But if border-crossing data are anything to go by, Gerety may be right about the lower loonie having less direct impact on Maine businesses than previously thought. Back in 2002, when the loonie hit 63 cents U.S., more Canadians actually came across the border than a decade later in 2012, when the currency was routinely trading at or above par.

"When we're looking at things like border crossings and relationship to the exchange rate, I think that we have to be quite aware that there's always more than one thing in play," says Rick Nason, a professor of finance at Dalhousie University in Halifax. Trying to predict how the exchange rate is going to drive people to consume, is a perfect example of what he calls "complexity."

"For example, I grew up in St. John (New Brunswick) and St. John, of course, is known for two things: the pulp mill, and people shopping in Bangor," he says.

The simple assumption, Nason says, has always been that Canadians will balk at paying higher prices for goods in Maine when their dollar is weak. But, he says, when their dollar is weak, New Brunwick's major industries, such as pulp and paper - win more of the market, so St. Johners will likely have more money in their pockets.

On the other hand, he says, Canadians may read in the news that their dollar is weak, and that can have psychological impacts that may drive how they behave as consumers.

"And so we have a whole bunch of feedback systems, or things counterbalancing each other, and that makes it so hard to isolate and say a weak Canadian dollar causes this, or causes that," Nason says.

While tourist and consumer behavior may be hard to pin down, industry is little more straightforward. Nason says there are still a great many factors at play, but cheaper Canadian paper in times of a weak loonie is likely to be more attractive to buyers than more expensive Maine paper.

Other manufacturers in Maine may also lose out to cheaper Canadian goods. And then there's the commodity about which Mainers are very sensitive.

"Right now, with the live lobster market, it really isn't making a difference," says Bob Bayer, with the Lobster Institute at the University of Maine.

But, says Bayer, there could be an effect on processed lobster this summer. As Maine already has fewer processing facilities, it's already scrambling to play catch up. And, Bayer says, a weaker Canadian dollar could worsen the situation.
"They'll have an advantage in that workers will cost less," he says.

But even that isn't straightforward, says Bayer. With more workers heading west to go work in Alberta's oil sands, there's currently a smaller labor pool for the Atlantic processing plants to tap, and that could drive labor costs back up for Canadian processors.

In the short term, loonie-watchers are keenly anticipating U.S. and Canadian employment figures, which are both due out this week.

Meanwhile, Mainers watching as the exchange rate see-saws are just as susceptible to psychological cues as Canadians, says Dalhousie's Rick Nason. If Mainers just start feeling more secure about their finances and their place in the economy, this summer may well see lots more Mainers in St. John, stocking up on Coffee Crisps and sampling the local poutine.



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