Weakening Canadian Dollar May Provoke More Expensive U.S. Travel

If you're planning on travelling to the U.S., you might want to book your trip sooner than later.

The Canadian dollar is expected to weaken while the U.S. dollar is expected to strengthen by the end of 2017, according to recent reports from RBC.

The latest RBC Economic Outlook quarterly report has released stats on consumer spending, housing, and business investment that, overall, show robust gains for Canada in the second half of last year.

According to RBC Economics, real gross domestic product (GDP) is expected to grow by 2.6 percent in 2017 and 2.1 percent in 2018.

Further, continuing with an eight-year trend, consumers are expected to provide a large lift to the economy in 2017. With business investment on the rise and government spending on infrastructure ramping up, RBC Economics projects the economy will grow at nearly double the average pace of the prior two years.

Canada’s economy is on track to post its strongest gain in three years”, said Craig Wright, senior vice-president and chief economist at RBC. “While we don’t discount the risk of a slowdown resulting from the pending renegotiation of NAFTA or the expected cooling of the housing market, we remain confident the economy will continue to grow at an above-potential pace for the remainder of this year.”

This is all well and good, however, there is a period of weakening ahead for the Canadian dollar that might make cross-border travel more difficult for Canadians.

RBC forecasts the Canadian dollar will end 2017 at 71.4 U.S. cents., while the U.S. dollar will remain strong.

Political uncertainty will likely remain high in the near term, and stronger growth and more aggressive tightening by the U.S. Federal Reserve should result in strengthening the U.S. dollar.

The outlook is brighter for 2018, when the Canadian dollar is expected to rise to 75.2 U.S. cents, as the Bank of Canada starts to raise the overnight rate and oil prices continue to march upward. The overnight rate is expected to finish 2018 at 1.25 percent up from 0.50 percent today.

Also, amid uncertainty over the emergence of trade protectionist measures by the U.S., the Bank of Canada is expected to keep interest rates on hold through the remainder of 2017.

Even with oil prices forecasted to see some recovery, the divergence in monetary policy between Canada and the U.S. and unease surrounding the outcome of the NAFTA renegotiations will continue to depress the Canadian dollar.

This means that travelling to the U.S. may become drastically more expensive for Canadian travellers by the end of this year.

For more on RBC's economic outlook, click here.

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