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.
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