This Could Crush the Canadian Dollar
Imagine the loonie worth little more than half of a U.S. dollar. According to some economists, that might not be such a crazy idea for the Canadian dollar.
On Monday, the CAD to USD exchange rate plunged to a 13-year low, closing the trading session just under US$0.69. Over the past two years, the Canadian dollar has fallen 33% against the greenback, the biggest decline since the currency was unpegged from the U.S. dollar in 1970.
But this could be just the beginning.
A growing number of analysts see even more downside for the CAD to USD exchange rate. On Monday, BMO Capital Markets Chief Economist Douglas Porter warned the Canadian dollar could plunge to US$0.66 if the Bank of Canada cuts interest rates next week. (Source: “‘Currency instability’ now a serious concern for Canada,” Financial Post, January 18, 2016.) Currency strategist Adam Cole of Royal Bank of Canada sees the loonie bottoming out around US$0.65. (Source: “Analysts warn of further decay as Canadian dollar nears 68¢ before firming,” The Globe & Mail, January 18, 2016.)
Some economists are even more worried. David Doyle lowered his Canadian dollar forecast to US$0.59. In a report published last week, the Macquarie Capital analyst predicted low commodity prices could send investors fleeing for safer havens elsewhere. (Source: “Canadian dollar will drop to 59 cents US in 2016, Macquarie forecasts,” CBC, January 13, 2016.)
“Once [the loonie] reaches this level, it should remain subdued through [the end of] 2018 and potentially even longer,” Doyle predicted. “You could imagine the situation is worse today than in the 1990s.” (Source: Ibid.)