BUSINESS

Loonie ‘Undervalued' But ‘Worst Days Are Over': BMO

04/21/2015 11:41 EDT | Updated 04/21/2015 11:59 EDT

Same-day trips to the U.S. from Canada have plunged 28 per cent in the past two years, a sign that the loonie is undervalued, the Bank of Montreal says.

“Though aggravated by the lousy weather, nearly half of the decline occurred in the first two months of the year as the loonie tobogganed lower,” economist Sal Guatieri wrote, adding we can expect to see another decline in trips to the U.S. when March numbers are released.

“The dramatic change in shopping plans could mean the loonie’s worst days are over, barring a renewed dive in oil prices.”

Guatieri was referring to StatsCan's report Monday showing that Canadian travel abroad is at lows not seen since 2010, the result of a sliding Canadian dollar.

Guatieri’s chart shows that same-day trips to the U.S. and the value of the loonie track each other pretty closely:

bmo loonie travel

The Canadian dollar has fallen 15 per cent from a recent peak in July, 2014, of 94 cents U.S. to around 80 cents U.S. in recent weeks (though it just shot up to around 82 cents this week).

Guatieri estimates that price parity between the U.S. and Canada happens when the loonie is in “the low 80s,” suggesting that prices in Canada are now at or below U.S. levels.

That backs up a recent survey from Deutsche Bank showing that, even though Canada is among the most expensive countries in the world, it has become slightly less expensive than the U.S. recently.

Most, Least Expensive Countries