The Canadian Dollar hit an 11-yr low against the U.S. Dollar joining the other G10 nations that are being pushed down by a strong USD. (Excluding the Japanese Yen which seems to be holding up against the dollar). ‘Monetary policy divergence’ is being felt across the board but the CAD seems to be the weakest currency within the group.
Pressures are mounting on the Bank of Canada to make additional moves to ease its economy and another January rate hike may be in the cards should the price of oil, which the Canadian economy relies heavily upon, fall below the 2008 intraday low of $32.40.
CAD Falls Further
The Canadian dollar fell to C$1.40 per US Dollar Friday for the first time since 2004, down close to 17 percent for the year amid concerns that markets continue to favor the US Dollar after Wednesday’s FOMC decision to raise rates and its projected four hikes in 2016. Rising rates in the U.S. draw more foreign investment to the country as investors chase higher returns on interest-bearing products. While the U.S. has just begun to raise its key interest rate, the Bank of Canada is unlikely to follow any time soon and may even lower its key rate.
A lot of the widening USD/CAD spread has to do not only with the Fed decision on December 16, but also the deepening glut in US oil. With oil plunging to below $35 US a barrel (it was around $60 US at the start of the year and more than $100 US in the middle of last year), the hit to the loonie has been huge. Canada is a large exporter of oil, which is priced in U.S. dollars. In addition, prices of gold, copper and coal, which Canada also exports heavily, have also been slumping.
Some analysts see the loonie falling further in 2016, while many say the bottom is in sight and is unlikely to test the all-time low of 61.79 cents US set in January 2002.