CANADIAN PESO
By Yul Baritugo
TORONTO — The loonie continued to slide on Thursday — looking more like a Canadian peso — reaching its lowest level since March 2009 after losing more than a cent against the greenback following the Bank of Canada’s rate cut on Wednesday.
Economists say it could decline further if the economy continue to be sluggish and contracts.
Demand for Canadian goods continue to soften in both China and the United States and other traditional markets resulting in a puzzling performance in exports. The price of oil continued to fall as the August crude contract closed down 50 cents to US$50.91 a barrel. The price of oil has fallen by more than half since its peak in July 2014.
Futures traders aren’t expecting a rebound in the price of oil until 2017 which means Canada’s recovery needs to come from non-energy industries.
Central Bank Gov. Stephen Poloz expected exports to surge after he cut interest rates and forced the loonie down against a basket of currencies. Most of the CB action are textbook strategies that are untried.
It was observed that most businesses now are highly leveraged and will not avail of cheap money the Central Bank is attempting to pump into the economy.
The Canadian dollar declined 0.3 of a cent to close at 77.10 cents U.S. on the day after the central bank cut a quarter-point from its benchmark overnight lending rate and slashed its outlook for economic growth.
Todd Mattina, chief economist and strategist at Mackenzie Investments, said the Canadian dollar could fall even lower if domestic growth continues to be sluggish.
He said the central bank could cut rates further later this year if the economy continues to stumble.
“There could be pressure, downside risk in the growth outlook,” he said.
He said the Canadian currency was also hit by testimony from Federal Reserve chairwoman Janet Yellen in Washington indicating that the United States could begin to raise rates this fall, widening the gap between the two currencies and making the Canadian dollar even less attractive for investors looking for gain.
An increase in US interest rates will attract investors to the US currency and drive its value higher. This will cause a huge gap between the US dollar and the Canadian loonie and could adversely impact inflation as consumer goods are priced in the US currency.
The August gold contract fell $3.50 to US$1,143.90 an ounce and the August contract for natural gas was down 6.4 cents to US$2.85 per thousand cubic feet.
