'The downside could be enormous from here. There is no reason why it can't fall much farther'
Thursday, July 23, 2015
The Canadian dollar dropped to levels not seen since 2004 on Wednesday.
The loonie closed at 76.70 cents against the U.S. dollar, according to the Bank of Canada, down 0.53 cents. That's lower than the 76.85 cents the loonie closed at on March 9, 2009, more than six years ago. The loonie hasn't been this low since September 2004, almost 11 years ago, when it touched the 75 cent level.
The dollar has been on a downward slide since last summer, when the price of oil started to weaken.
Oil prices dropped below the $50 US mark in trading Wednesday, while gold traded for less than US$1,100 an ounce.
"Oil is beginning to roll over once again," ForexLive currency analyst Adam Button said in an interview. "Crude is below $50 today, and that is the No. 1 reason to be worried about the loonie."
The Bank of Canada's decision last week to lower its benchmark interest rate picked up the pace of the loonie's decline. Currently, the central bank is forecasting oil to average $60 a barrel for the rest of the year.
"We're almost 10 bucks below that," Button said, "so the downside could be enormous from here. There is no reason why it can't fall much farther."
The last time the loonie was this low, the U.S. economy was in dire shape as well. This time around, Button says, Canada is likely headed into recession at a time when the U.S.economy and dollar is doing well — a volatile situation.
"Higher interest rates in the U.S. in 2015 will be a stark reminder of just how advanced the recovery is south of the border," CIBC said in a recent note on the loonie's outlook. "More of the same lies ahead."
"The U.S is thriving, while Canada is at best treading water," Button said.