Canadian dollar on track for 2nd-worst year ever

The word "beleaguered" — often used to describe the Canadian dollar these days — seems inadequate to describe the precipitous fall our currency has experienced this year.

Currency is down 17% year-to-date against the U.S. currency

The Canadian dollar hasn't been at par with the U.S. dollar for three years. This year, the loonie's slide against the American dollar was one of the biggest ever. (Mark Blinch/Reuters)

The word "beleaguered" — often used to describe the Canadian dollar these days — seems inadequate to describe the precipitous fall our currency has experienced this year.

Assuming that the loonie stays at current levels (and that may be a reckless assumption given the steady slide we've seen of late) our dollar is on track to record its second-worst year ever, according to calculations from  BMO Capital Markets, with a drop of 17 per cent since the start of the year.

That would be second only to 2008's drop of 18.6 per cent, when the financial crisis was gripping much of the industrialized world.

Economists at the National Bank of Canada put it this way in a currency outlook this month: "This year is one to forget for holders of the Canadian dollar."


To put this slide into perspective, of course, it's necessary to go back more than one year. Remember when the dollar was on par with its American counterpart? It wasn't that long ago. The two currencies were at par as recently as December 2012.

Today, it costs at least $1.40 to buy a greenback that could be swapped one-for-one with our loonie three years ago.

Experts cite several main reasons for the slide since then:

  1. Slumping oil prices. With oil plunging to around $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 our currency has been huge. Canada is a large exporter of oil, which is priced in U.S. dollars. Prices of gold, copper and coal, which Canada also exports in abundance, are also slumping. 
  2. Diverging Canadian and America monetary policies. The U.S. has just begun to raise its key interest rate while the Bank of Canada is unlikely to follow any time soon and may even lower its key rate. Rising rates in the U.S. draw more foreign investment to that country as investors chase higher returns on interest-bearing products.
  3. Strength in the U.S. dollar. The prospect of higher U.S. interest rates and a U.S. economy that is recovering faster than many others have combined to drive up the greenback against a number of other currencies, not just the Canadian dollar. An index that tracks the U.S. buck against a basket of other currencies hit a 13-year high earlier this month. 

A low loonie makes it more expensive to take that U.S. vacation, but it also makes our products cheaper for U.S. buyers. So far this year, a boom in exports has failed to materialize. Merchandise trade exports to the U.S. are actually down from a year ago. That, too, is helping to keep the Canadian dollar low. But market watchers say exports should eventually turn higher.

"I know [the low Canadian dollar] hurts our national pride and all that, but it is what we need in terms of getting our economy back on its feet," Ian Nakamoto, director of research at Toronto-based 3Macs, said recently.     

And while some analysts see the loonie falling further in 2016, 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.

And for those who say they can't imagine a worse currency slide, consider the situation in Argentina. Earlier this week, the Argentine government removed limits on buying foreign currencies.

Overnight, the peso lost 30 per cent of its value against the U.S. dollar.            

With files from The Canadian Press