The loonie tumbled to below 74-cent range, an 11-year low, and analysts say it won’t stop there. In fact, it dipped below that mark today.
“The broader thrust of recent Canadian data reports – retail sales, manufacturing shipments, industry-level GDP, jobs, trade – have been disappointing,” Shaun Osborne and Eric Theoret of Bank of Nova Scotia said in a report.
The rout in the oil market deepened today, bringing down stock markets and the Canadian dollar.
“Expect the [Canadian dollar] to struggle in the face of lower energy prices and wide (or wider) U.S.-Canada interest rate differentials as the Fed nears liftoff and the [Bank of Canada] remains far away from raising rates,” they added, noting that “fundamental, technical and seasonal considerations are all aligning in [U.S. dollar]-bullish fashion.”
Scotiabank believes the Canadian dollar will sink to about 73 cents in the next month or two, before dropping even lower to around 71.4 cents.
“Seasonally, as we have stressed in the recent past, USDCAD typically trades quite positively around this time of the year,” the Scotiabank strategists said, meaning the U.S. dollar vs. the loonie.
“Even if the USD fails to make a more decisive move higher this side of the holidays, January still risks seeing the move up in funds accelerate. The tendency for USDCAD to gain ground in Q4 and Q1 is evident over the last 25 years, according to our studies, and has been especially pronounced over the last 10 years, according to Bloomberg data.”
Indeed, they noted, the U.S. dollar vs. the loonie climbed in January in eight of the past 10 years, for an average gain that month of 0.9 per cent.
