The Canadian dollar lost more ground on Monday, falling to its lowest intraday level in more than two years.
In the afternoon, the loonie was changing hands down 0.18 of a cent at 93.98 cents US, just shy of
its close of 93.93 cents US on June 30, 2010. Earlier in the day, it traded as low as 93.86 before recovering some ground.
That's the lowest the loonie has traded since October 2011. It is the first time the loonie has closed below 94 cents in more than three years.
'There is a high correlation between the price of oil and the Canadian dollar' - CIBC portfolio manager Jennifer Dowty
After repeatedly trading above parity in recent years, consensus has turned for the loonie, with some watchers saying Canada's dollar could fall a lot more. Goldman Sachs predicted last week the loonie will trade in the high 80-cent level next year.
"The momentum for the Canadian dollar is moving one way for the last three months: lower," Forex Live currency analyst Adam Button told CBC News in an interview.
But Button said the slow march of the loonie is really more about strength in the U.S. dollar than any sort of Canadian weakness. The economic picture continues to improve south of the border, and that's spurring confidence in the American dollar, the world's reserve currency.
"Canadian oil is trading at a $30 discount to U.S. oil," Button notes. "That's what's sinking the loonie more than anything."
Jennifer Dowty, an associate portfolio manager with CIBC Global Asset Management, said the dollar is feeling pressure as a result of dropping commodity prices, particularly gold and oil.
February bullion fell $25 to $1,225.40 US an ounce, and she forecasts this weakness will likely continue.
"There is a high correlation between the price of oil and the Canadian dollar," said Dowty. "A weakness in crude has been reflected in the Canadian dollar."
Benjamin Tal, deputy chief economist at CIBC World Markets, believes we’re at the end of a “mega-cycle” of high commodity prices, including high prices for oil and gas, copper and minerals and grain.
“That’s what’s dominating the loonie, not just interest rates, not just the Bank of Canada, but the commodity market and to what extent this cycle is over,” he said in an interview with CBC’s Lang & O’Leary Exchange.
“You have a situation where China is becoming less commodity-intensive; you have more supply coming from the U.S. and other places. That’s not very helpful,” he added.
The loonie might gain ground again within the coming year, but over the longer-term, Tal predicts it will sink to the 85-cent range.