The loonie is inching closer to the American dollar, but Canadian consumers aren't likely to see prices of U.S. imports and services drop anytime soon.
The loonie's value has increased dramatically since 2002 when it fell to a record low, just under 62 cents US. On Friday, the loonie was trading at 94.74 cents US.
Finance Minister Jim Flaherty warned last week that the soaring value is driving people to shop in the United States, where consumers could save up to 40 per cent on some items.
"My point to business leaders has been, 'You should do what you can to accelerate the benefit to Canadian consumers,' and I think quite frankly, that Canadian consumers can help by shopping around," Flaherty said in an interview in Australia after meeting with his counterparts from 21 Asia Pacific countries.
While crossing the border to buy goods will surely save shoppers some quick cash, there are other factors to consider that might not make the trip worthwhile.
Canadians may be better off making their flights at local airports, rather than travelling through the U.S. to other destinations.
The U.S. has seen a surge of Canadian travellers over the past year as hot destinations such as Florida and New York have suddenly become a bargain.
But Canadians are choosing to hop on a plane from their hometowns rather than cross the border by car and deal with tough American security regulations, said Allison Eaton, spokesperson with Flightcentre, a North American-wide travel agency.
"There's definitely a jump in people travelling, but not necessarily a jump in people flying out of the States," she said. "People are generally avoiding flying out of the U.S. because of security issues. Plus, it's not that much cheaper when you factor in driving across the border and parking your car."
Eaton said air travel to the U.S. can be worth the effort, however, if you live close to the border and not too far from an American airport.
"If you live in Vancouver and drive to the Seattle airport to fly to Los Angeles, you can save up to a couple of hundred dollars," she said, adding that you'll also pay fewer taxes and face less stringent security.
Limited savings back home
Once you're on vacation in the States, that's when the savings begin with hotel rates, clothes, electronics and books -- all at a lower price than what you'd find in Canada.
But you'd better enjoy it, because once you head north and cross the border back home, the savings stop.
Items such as greeting cards, magazines and books all have pre-printed costs on them, displaying both the suggested American and Canadian retail price. Many consumers have been wondering why the price difference continues to be so wide, considering how close our dollar values are. But one industry insider says it's not just the exchange rate that's a factor in the price point.
"We import it here, we have to store it here before shipping it out from here...it all adds to the cost," said Susan Dayus, executive director of the Canadian Booksellers Association.
That means no matter how neck-in-neck the two dollars are, books in Canada will always cost more than they do in the U.S., she added.
However, that doesn't mean that book prices haven't been adjusted to reflect the exchange rate savings. According to the Canadian Publishers' Association, booksellers and consumers have been seeing discounts for the past 12 to 18 months.
"Consumers have begun to see that and will see a lot more of that coming this fall," said Jackie Hushion, the association's executive director.
"Many publishers issued statements to Canadian booksellers about what they're doing in order to close the gap and they've been quite pleased with what they've seen," she added.
The car question
Cars are a big ticket item, and Canadian consumers could save as much as $20,000 by purchasing a high-end vehicle across the border.
The savings vary depending on the vehicle but generally, they can make the trip and the hassles of bringing the purchase back to Canada well worth it.
"If it were me, I would definitely buy a car in the States," said Brian Osler, president and CEO of the North American Automobile Trade Association. "In most cases it's a very tangible option. Dealers that sell their cars to Canadians offer something different with significant savings."
According to statistics compiled by NAATA, 64,096 cars were purchased in the U.S. by Canadians in the first six months of 2007. In 2002, when the Canadian dollar reached its lowest point, only 38,923 cars moved north across the border from American dealers.
Osler pointed to two factors behind the trend: "First, the change in the exchange rate made most American cars less expensive. Second, Canadian consumers are more aware now that they can save money by buying their car in the U.S."
There are some drawbacks however. Most manufacturers will cancel their warranty if their car is brought into another country to discourage the practice. Also, if the car was manufactured outside of North America, Canadians will pay a 6.1 per cent tariff to import it into the country.
But Osler says cross-border car shoppers still represent a very small part of the market, as millions of cars are bought from Canadian dealers each year. That's why you won't see the Canadian or U.S. markets adjust to reflect the changing exchange rate.
"There's always going to be a price difference, there might be a little adjustment but for the most part, cars will always sell for what the market will accept," he said.
The reports
Douglas Porter, deputy chief economist for the Bank of Montreal, published a report in June that showed the loonie had appreciated by 50 per cent over the last five years but that import prices have not dropped accordingly.
Meanwhile, Flaherty said while he can't force businesses to pass along the savings, he has some influence in making sure they do what they can to keep Canadians shopping in the country.
"I won't name the companies but I have spoken to some business leaders about ensuring that they pass along savings ... price reductions that should follow the higher Canadian dollar," he said.
