Friday, August 28, 2015

Canadian dollar goes to hell in a wheelbarrow | Loonie is a big loser on falling oil price

The Canadian dollar has just fallen below a level that marked the possibility of a rally against the US dollar, of 1.30 to the Greenback (When USDCAD goes up it signifies weakness in the Canadian dollar). This resistance, when discussing USDCAD, dates from 2008/2009 (see chart). There is a worse level for the Canadian, but it goes back all the way to 2002/2003.

Loonie is a big loser on falling oil price

The Canadian dollar is one of the biggest losers among developed economies on the fall of oil and other commodities. While emerging markets, which have to include Russia because of the sanctions that have been put in place over Ukraine, are also suffering, Canada is up there among those that have reason to regard themselves as part of the improving western economic cycle.

The Canadian central bank has reduced interest rates twice this year, and there is a strong expectation that it will do so again in September. This would bring the core rate to 0.25%, the lowest it has been since the onset of the global financial crisis.

The economy in general in Canada has been behaving in a manner that induces interest rate cuts, in order to stimulate exports. However, this also leads to less value for Canadian consumers and the possibility of imported inflation.

The imminent rise in US interest rates by the US Federal Reserve is the final straw in the decline of the Canadian unit against that of its neighbor to the south.

For all these reasons, it looks like the fall in the Loonie could have further to go.

No comments:

Post a Comment