Editorial Cartoon by Graeme MacKay, The Hamilton Spectator – Friday January 30, 2015
Loonie drops below 80 cents US
The Canadian dollar has slipped below 80 cents US for the first time in almost six years.
The loonie closed at 79.87 cents US on Wednesday, down about three-quarters of a cent from Tuesday’s close.
The Canadian dollar’s tumble accelerated just after the U.S. Federal Reserve reiterated it will be patient in raising rates from record lows and noted that the U.S. economy continues to improve.
That statement immediately sent the value of the U.S. dollar up against many major of the world’s currencies, including the Canadian dollar.
“The strong divergence of the Fed having a tightening bias, regardless of how much they end up tightening, is likely to keep the [U.S.] dollar supported versus most currencies,” Robert Tipp, a chief investment strategist at Prudential told Bloomberg.
At official exchange rates, the dropping value of the loonie means it now costs more than $1.25 to buy a U.S. dollar.
The Canadian dollar hasn’t traded below 80 cents US since April 2009.
“The Fed is leaning towards rate hike mode, while the [Bank of Canada] is in a rate cut mode. It is a tale of two worlds,” wrote Rahim Madhavji of Knightsbridge Foreign Exchange in an emailed commentary.
“The trend is the friend for the U.S. dollar. The next few months could get ugly for the loonie.”
Economists have forecast that the Canadian dollar could drop to 75 cents US or even lower, depending on a number of factors, including the length of the current oil price slump. Lower oil prices are considered a negative for the loonie’s value.
Crude oil prices dropped $1.78 to close at $44.45 US a barrel on Wednesday. That was the lowest close for crude futures since March of 2009. The U.S. Energy Department reported earlier in the day that oil inventories had risen to their highest levels ever recorded. (Source: CBC News)