Canada: Canadian dollar weakens to six-year low in mid-July
July 22, 2015
On 20 July, the Canadian dollar (CAD) hit an over-six-year low, weakening to 1.30 CAD per USD, thus marking a 6.0% monthly drop and a 21.1% yearly decline. The last time the CAD was so weak against the U.S. dollar was in mid-March 2009. The CAD began a steady weakening trend in the second half of last year, which coincided with a drop in energy prices.
A variety of domestic and external factors have been contributing to the weakening of Canada’s currency. The oil price shock of last year and the moderation of growth in China, which has led to decreased demand for key Canadian exports, have put downward pressure on the CAD. On the domestic side, the Bank of Canada’s active role in providing an accommodative monetary setting, exhibited by cutting the policy rate twice in the last six months, has helped to further depreciate the currency. These factors are not likely to abate in the near future as Aron Gampel, VP and Deputy Chief Economist at Scotiabank explains:
“Given the increased sensitivity of monetary policymakers to the languishing performance of both energy and non-energy exports — and the resulting deflationary shock — the shift to more accommodation will likely reinforce a lower trading range for the Canadian dollar (the ‘loonie’). The renewed pullback in the price of crude oil, especially with inventories bolstered by increased OPEC production, the absence of appreciable output reductions in non-OPEC countries, and the potential for increasing Iranian shipments in the future, should also be a factor. And so is a stronger greenback, especially with the Fed contemplating tightening policy by the end of the year.”
Author: Eric Denis , Economist