The forecast for the Canadian dollar is not looking too bright and analysts fear the worst because it recently dropped below the 70-cent US level for the first time since 2003. However, there is more bad news because the top forecaster of the Canadian dollar predicts that the currency will fall to a record 59 U.S. cents by the end of the year, a report from the Financial Post states.
On Tuesday, the Canadian dollar (loonie) experienced its worst drop since May 2003, according to information from the Bank of Canada. The Canadian currency was trading Tuesday at 0.6989 US dollar units. As was warned last week by the central bank governor, Stephen Poloz, the currency will remain lower due to falling oil prices and monetary divergence between central banks in the United States and Canada. The decline in oil prices –about $30 a barrel — has also had a strong impact on a country whose economy depends on oil exports. The government of the province of Alberta, the heart of the Canadian oil industry, has warned it will be hard to fulfill its campaign promises because of the negative impact of falling oil prices.
The so-called “loonie” had a historic drop in January 2012 when it was traded at 0.6179 to the U.S. dollar. Its highest price in recent years was in November 2007, when it reached its all-time high of 110.3 cents. The last time the Canadian dollar traded above the U.S. dollar was in February 2013. Since then, it has been on a gradual and steady decline. The currency’s historic low was back in January 2002 when it dipped to 61.79 cents U.S.
Speaking with the Huffington Post, Macquarie Group analyst David Doyle, whom Bloomberg Business considers the top forecaster of the Canadian dollar, released the following statement regarding the matter.
“You could imagine the situation is worse today than in the 1990s,” Doyle said earlier this week, referring to the last time the loonie saw a prolonged decline. “We’re much more dependent on oil now than we were in the past.”
Douglas Porter, chief economist at the Bank of Montreal, also weighed in on the issue and he believes a dip below 70 cents U.S. “is more of a psychological threshold for the average Canadian rather than a critical measure.”
Porter said the biggest impact may be that average Canadians “will feel like something is amiss or that they’re poorer” as a result of the drop. He said food and gas prices may rise as a result of the struggling loonie, and Canadians vacationing in the U.S. will no doubt feel a pinch.
“My bigger concern is it might start to show up in many other prices… like clothing prices, or book prices, or car prices,” Porter said.
While the Canadian energy industry is suffering a slowdown, other sectors such as film production have benefited, as many U.S. producers prefer shooting in Toronto or Vancouver in order to take advantage of the drop in the Canadian dollar. The cattle industry has also benefited, because although the Canadian dollar is down, the price of cattle is still maintained at the levels of the U.S. Last year, Canadian cattle exports to the United States totaled $1.5 billion. However, Canadians often escape the cold weather and travel to warmer areas of the United States, although they soon discover their money will not give them parity they used to have.
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