Guest Author - Jill Browne

The Canadian Dollar Has Gone Up

The U.S. dollar and the Canadian dollar fluctuate in value against each other, depending upon a whole host of economic factors. Bottom line: as at today, October 6, 2007, the Canadian dollar is worth more in terms of U.S. dollars than it has for about 30 years. What does this mean?

Is It Time to Go South or Time to Go North?

The cost of a trip to another country has the same elements as the cost of a trip at home, except that currency values and their fluctuations enter into the equation. It's tempting to say, "Well, the U.S. dollar is so low now that (a) all the Canadians should go south and (b) all the Americans should stay home." But of course, this is an oversimplification. Americans should not cancel their plans to visit Canada as this currency fluctuation might - surprisingly - produce some bargains for them.

How Does Currency Fluctuation Affect the Price of Your Trip?

If it's an all-inclusive, and you pay in your own currency, then you don't have to make a decision. But maybe it's time for Canadians to look at trips priced in U.S. dollars and consider pre-paying them while the Canadian dollar is high. This is a bit risky, so take the downside into account. First, when you pre-pay for anything - travel or anything else in the world - there is always the risk of losing all your money. That is a big topic, but the lesson is to figure out how to protect yourself.

The second risk is that the value of the Canadian dollar will continue to go up. Say you pay $500 Canadian today to buy something priced at $500 in US dollars. Then in two weeks' time, if the Canadian dollar has gone even higher, your friend gets the same thing for $490 Canadian, solely because of the change in currency values. Can you live with that? Alternatively, if you lock in your $500 Canadian today and the Canadian dollar falls, your friend might have to pay $510. Obviously you could feel secretly superior. But what if the "friend" is you? What if you waited and the dollar turned against you, could you live with that?

The problem is, no one has a magic ball. The dollars rise and fall all the time. To avoid driving yourself crazy trying to time the market, just buy something at a price that represents fair value to you and then stop worrying about it.

How Will the High Canadian Dollar Affect Canadian Tourism?

Here is the good news mixed with the bad. Canadian tourist operators depend upon visitors from the U.S. for a large part of their business. The last thing these operators want is to find their American customers turning away because of the declining U.S. dollar. So, it's a fair prediction that Canadian businesses will be looking for ways to attract Americans to come north in spite of the exchange rate.

Smart American travellers should watch for promotions aimed specifically at them. Some of the best places to find these should be border areas, because they are in direct competition with American businesses nearby. Also, independent operators (hotels, motels, attractions, restaurants) might have to sharpen their pencils more than their larger international chain competitors.

Look for Promotions from Smaller Canadian Operators

The larger international operators are used to dealing with foreign exchange risk as a normal part of their business, and to be efficient, they have hedging and other programs in place to buffer them from any sudden changes in currency values. Simply put, that means they pay a little bit all the time to avoid a major loss when the markets move dramatically, sort of like insurance. No program is perfect, but having some program in place is better than having none. Unfortunately, small operators do not usually have the resources to engage in forex risk management. Therefore, when the market turns against them, they have to find creative ways to keep the customers coming across the border.

It's only October. By next summer, all of this might be a dim memory. However, if the Canadian dollar remains high, it's a safe bet that there will be many incentives to encourage U.S. tourists to come to Canada.