Canadian dollar dips below 77 cents with more pain to come

The Canadian dollar is nearing its low for the year Friday, after news that the economy contracted for a fifth straight month in May.

TD Bank predicts 73-cent loonie as effects of low oil linger

The Canadian dollar dove following bad news early on Friday about the economy. (Paul Chiasson/Canadian Press)

The Canadian dollar is nearing its low for the year Friday, after news that the economy contracted for a fifth straight month in May.

The loonie closed at 76.45 US cents, down half a cent from Thursday, after Statistics Canada said the economy shrank 0.2 per cent in May. The lowest close this year is 76.40 US cents.

TD Bank economist Leslie Preston says the dollar is likely to go to 73 cents this year, and will stay in the mid-70s for at least another year.

"Lower oil prices and more stimulative monetary policy also led us to downgrade our forecast for the loonie. We now expect the Canadian dollar to depreciate versus the U.S. dollar, reaching 73 cents by the second quarter of next year, before rising gradually back up to 76 cents by the end of 2016," she said in a report to investors.

Canada's economic performance is a sharp contrast from the U.S. economy, which grew 2.3 per cent in the second quarter of the year according to the latest assessment from the Commerce Department.

Low oil prices, which have stayed below $50 per barrel for the past month, are hurting capital investment by the oil sector and have resulted in elimination of hundreds of jobs.

The low loonie was supposed to help Canada boost exports and stimulate the manufacturing sector, especially with the U.S. in growth mode.

But despite a Bank of Canada rate cut earlier this month, the business outlook is still lacklustre.

"It's clear the Canadian economy has responded sluggishly to last year's oil price shock, with the recovery timeline appearing to be longer than the Bank of Canada expected. In the short-term, look for domestic developments as well as oil prices to drive the Canadian dollar," said currency trader Madhavji of Knightsbridge FX.

The rate cut has put pressure on the Canadian dollar to fall further, as investors move towards the greenback in anticipation of a rate hike in the U.S. as soon as September.

That's not good news for Canadians with summer travel plans outside the country, who are facing higher costs because of a weak currency.


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