Loonie in for a bumpy ride as Poloz mulls another cut & Fed gets ready to hike
With one cut in the rearview mirror and another possible, the loonie could slide, Amanda Lang writes
Tonight's first order of business: this could be just the beginning of a weak stretch for Canada's currency
With our central bank lowering rates (one cut behind it and another expected as soon as next month) and plummeting oil prices both conspiring to send the loonie lower, there is also growing speculation that the U.S. central bank will go the other way and raise rates as soon as this summer.
If that happens, our U.S.-dollar denominated currency could weaken it even further. But it's what that does to the economy that is the wild card.
— Amanda Lang
Currency forecasting can be a notoriously tricky business. Still, the tea leaves don't look good for the Canadian dollar.
The U.S. dollar keeps rising, and the loonie keeps falling, down almost 14 per cent against the greenback in the last six months. That fall has been particularly dramatic since the Bank of Canada cut its key interest rate on Jan. 21.
Bank of Canada Governor Stephen Poloz says the loonie's fall makes sense, especially given the declining price of oil. "I honestly reject the notion that I'm talking down the dollar," said Poloz at a G20 meeting in Istanbul yesterday. "It's not about what we did. It's about how the economy has behaved."
The Bank of Canada might not be done cutting interest rates, as various economists think further cuts are possible between March and July. At the same time, U.S. Federal Reserve could hike its key interest rate between June and September. If that happens, it would be a perfect storm for the Canadian dollar.