Business

Loonie drops below 80 cents US

The Canadian dollar slipped below 80 cents US today for the first time in almost six years.
Economists forecast that the Canadian dollar could drop to 75 cents US or even lower 3:18

The Canadian dollar has slipped below 80 cents US for the first time in almost six years.

The loonie closed at 79.87 cents US on Wednesday, down about three-quarters of a cent from Tuesday's close.

The Canadian dollar's tumble accelerated just after the U.S. Federal Reserve reiterated it will be patient in raising rates from record lows and noted that the U.S. economy continues to improve.

That statement immediately sent the value of the U.S. dollar up against many major of the world's currencies, including the Canadian dollar.

"The strong divergence of the Fed having a tightening bias, regardless of how much they end up tightening, is likely to keep the [U.S.] dollar supported versus most currencies," Robert Tipp, a chief investment strategist at Prudential told Bloomberg.

At official exchange rates, the dropping value of the loonie means it now costs more than $1.25 to buy a U.S. dollar.

Lowest since April 2009

The Canadian dollar hasn't traded below 80 cents US since April 2009.

"The Fed is leaning towards rate hike mode, while the [Bank of Canada] is in a rate cut mode.  It is a tale of two worlds," wrote Rahim Madhavji of Knightsbridge Foreign Exchange in an emailed commentary.

"The trend is the friend for the U.S. dollar. The next few months could get ugly for the loonie."

Economists have forecast that the Canadian dollar could drop to 75 cents US or even lower, depending on a number of factors, including the length of the current oil price slump.  Lower oil prices are considered a negative for the loonie's value.    

Crude oil prices dropped $1.78 to close at $44.45 US a barrel on Wednesday. That was the lowest close for crude futures since March of 2009. The U.S. Energy Department reported earlier in the day that oil inventories had risen to their highest levels ever recorded.

Comments

To encourage thoughtful and respectful conversations, first and last names will appear with each submission to CBC/Radio-Canada's online communities (except in children and youth-oriented communities). Pseudonyms will no longer be permitted.

By submitting a comment, you accept that CBC has the right to reproduce and publish that comment in whole or in part, in any manner CBC chooses. Please note that CBC does not endorse the opinions expressed in comments. Comments on this story are moderated according to our Submission Guidelines. Comments are welcome while open. We reserve the right to close comments at any time.