Canada’s plunging currency was a hot topic this week, as the loonie set a new 11-year low seemingly every single day since Monday.
The reasons why Canadian dollar loosing are complex, but they’re very closely tied to the slumping price of oil, which can’t seem to find a bottom.
OPEC is pumping more, the IEA says there’s less demand for all that extra crude, and nobody seems to know where or when oil will hit its floor.
That’s dragging the loonie down, pulling it below 73 cents on Friday to its lowest level since May of 2004, when Paul Martin was prime minister of Canada and “blogging” was Oxford’s word of the year.
So, how low can the loonie go?
“I hate to say it depends,” BMO’s economist Doug Porter told CBC’s The Exchange this week, “but it depends on how low oil prices go.”
As a rough guide, Porter says, there’s a pretty decent correlation between the loonie and oil in recent years that has found that for every $10 decline or gain in oil’s price, the loonie goes up or down by about four cents.
So as soon as we know where oil’s going, we’ll have a clearer sense of where the loonie’s headed. But if oilpatch legend Jim Gray is right and oil could be going as low as $30, as he told the CBC’s Peter Armstrong in a fantastic interview this week, the answer may not be pretty, as that would work out to a loonie worth less than 70 cents US.
Read the full post in CBC News Business
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