01/24/2014 12:46 EST | Updated 01/24/2014 12:59 EST

U.S.-Canada Price Gap Disappearing Fast; ‘Carney Effect' To Blame?

Bank of England Governor Mark Carney attends the bank's quarterly inflation report news conference at the Bank of England in London, Wednesday, Nov. 13, 2013. Carney said unemployment in Britain is falling faster than anticipated, raising speculation in the markets that interest rates may start rising sooner than expected. (AP Photo/Toby Melville, Pool)

The plunging loonie has all but eroded the U.S.’s price advantage on Canada, and cross-border shopping barely makes sense anymore, says Bank of Montreal economist Douglas Porter.

BMO estimated last year that prices on both sides of the border would be about equal if the Canadian dollar hit 88 cents U.S.

“Here we suddenly find ourselves quite close to that figure, suggesting it simply does not pay for the average person to make the trip any longer (and put up with the border hassle),” Porter writes in a client note.

That’s not to say that everything in the U.S. is now almost the same price as in Canada; price differences vary greatly between different types of products and shoppers might still be able to get bargains south of the border. But they're going to have to look more carefully.

All the same, Porter expects the falling dollar to put the brakes on cross-border shopping, noting that trips to the U.S. track the value of the loonie pretty closely.

The Canadian dollar touched its lowest level since 2007 on Thursday, at 89.73 cents U.S., before bouncing back to just above 90 cents U.S. Friday morning.

Most observers see the loonie falling farther, and some analysts are even predicting an 80-cent dollar by the end of the year.

The ‘Carney Effect’

In another chart in his client note, Porter notes that something bizarre has happened to the loonie since just about the moment Mark Carney left the Bank of Canada to head up the Bank of England.

The loonie, which had been tracking the British pound (more or less) for years, suddenly diverged and started falling while the pound started spiking upwards.

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So did Mark Carney cause the loonie’s drop? Is his reputation as a central banker so stellar that just moving to England caused currency traders to ditch the loonie and buy the pound?

Or, more nefariously, does Carney know something about Canada’s economy that we don’t? Did he get out just in time?

Then again, the loonie is linked to commodity prices, which have been coming down for some time, and then there are all those predictions that the loonie is headed down, which themselves can cause traders to ditch a currency, and which began before Carney left.

So is there a ‘Carney effect’? Porter isn’t talking. “Just sayin’” is his only comment on the chart.

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