The Canadian dollar is trading at lows not seen in years. Here’s what to know
TORONTO — The Canadian dollar is trading against the U.S. dollar at levels not seen since 2020 as the combined pressures of economic outlooks, elections, and energy prices weigh. Here’s what you need to know.
Canada’s currency sunk just below 72 cents US on Monday for the first time in more than four years, breaking through the 72- to 76-cent band it has been trading within in recent months.
The loonie fell further on Tuesday, and continued to inch down on Wednesday, closing at 71.86 cents US.
The lower loonie should help industries like tourism because it can encourage more Americans to travel north to get more bang for their buck, but for anyone travelling to the United States, or buying things in U.S. dollars, it means paying more.
The biggest driver of the split between the Canadian and U.S. dollar is the diverging economic outlooks, and the interest rate decisions linked to those. That’s because the higher the central bank interest rate, the more worthwhile it is to hold that country’s currency.
Canadian economic growth is looking weaker than the U.S., leading the Bank of Canada to cut its key interest rate by an unusually high half a percentage point to 3.75 per cent last week. It was the fourth consecutive cut by the central bank and economists expect continued cuts ahead. With the U.S. economy seeing stronger growth, there’s less pressure and expectations of the path to lower rates from the U.S. Federal Reserve.
“The U.S. economy feels a lot more resilient. So the assumption is that … the Fed isn’t pressured to reduce rates as much as it is in Canada,” said Rahim Madhavji, president at Knightsbridge Foreign Exchange Inc.
Crude prices have fallen recently, down below US$70 a barrel, to also weigh on the loonie.
Th
Read more on financialpost.com
