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The exchange rate and tourism

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The exchange rate, or the value of the Canadian dollar relative to the currencies of other countries, has had a significant effect on tourism both for globetrotting Canadians and for visitors to Canada.

In the past, if the Canadian dollar gained strength against the American dollar, Canadians tended to increase the number of same-day and overnight trips to the United States. A rising Canadian dollar means Canadian travellers will pay less for everything from accommodation to dining, which usually encourages longer vacations. According to a recent study by the Canadian Tourism Commission (CTC), each 10% gain in the loonie versus the greenback means a 15% to 16% increase in Canadians’ overnight travel to the United States.

For example, at the end of 2004 the loonie traded at US$0.87. This translated into a 9% increase in buying power from the year’s low point of US$0.79—a real advantage for seniors and snowbirds on fixed incomes. In fact, Canadians had not seen their dollar at US$0.80 or higher in more than in 12 years.

Since 2002, however, the close relationship between the dollar and same-day travel by Canadians to the United States has broken down. The loonie has taken flight, but same-day travel south of the border—usually for cross-border shopping—has not responded.

There has been an increase in travel by Canadians to overseas destinations, particularly Asia. In 2004, Canadians made 13.1% more overseas trips than in 2003. Trips to the United States also went up, but by only 5.6%.

Exchange rate fluctuations do not seem to influence Americans’ travel decisions to the same extent. The CTC found that a 10% increase in the value of the U.S. dollar only increases Americans’ overnight travel to Canada by 3% to 4%.