Economists Have Dire Warning for Canadian Dollar
The Canadian dollar dropped for the 11th straight day Friday, marking the longest losing streak for the currency since 1971. But according to some economists, this could just be the beginning.
The CAD to USD exchange rate fell below US$0.68 during the week’s final trading session, hammered by falling oil prices and mounting expectations of a rate cut next week by the Bank of Canada. The loonie was also trading lower against the euro, British pound, and the Japanese yen.
The drop comes after heavy losses for the Canadian dollar over the past year. Since last January, the CAD to USD exchange rate has plunged more than 17%, trading at its lowest level relative to the U.S. dollar since 2003.
For Canadians, it’s dire news.
Households north of the border are bracing for higher prices on everything from fruits and vegetables to vacations priced in U.S. dollars. In December, CBC reported cauliflower prices spiked to $8.00 a head. (Source: “Cauliflower prices spike to $8 a head,” CBC, December 18, 2015.) Then on Wednesday, Bloomberg noted the outrage on social media, as Canadians vented over prices like $3.00 cucumbers, $8.00 for a dozen eggs, and $15.00 for a small box of “Frosted Flakes.” (Source: “Canadians Are Going Loonie on Social Media About Skyrocketing Grocery Bills,” Bloomberg, January 15, 2016.)
“We’re going to be paying a buck a banana pretty soon,” James Price, director of Capital Markets Products at Richardson GMP, recently predicted during an interview on BloombergTV Canada. (Source: Ibid.)
The situation is straining household budgets, too. In a report published earlier this month, the University of Guelph’s Food Institute estimates the average Canadian spent an additional $325.00 on food in 2015. Consumers should expect an additional annual increase of about $345.00 in 2016. (Source: “Food Price Report,” University of Guelph, last accessed December 15, 2016.)
And there’s no sign of a bottom in the Canadian dollar anytime soon.
Market commentator Douglas Porter foresees the CAD to USD exchange rate trading below the US$0.70 level for a long time to come. In a research note published Thursday, the chief economist at the Bank of Montreal predicted the Bank of Canada will cut interest rates next week in a desperate bid to starve off a recession. This move, he explains, will continue to put pressure on the Canadian dollar. (Source: “Canadian Dollar Forecast is Gloomy, Sees Its Biggest Drop In Years.,” Inquisitr, January 15, 2016.)
Macquarie Group analyst David Doyle is even more pessimistic. Last year, he predicted the CAD to USD exchange rate would drop to US$0.70, thanks to falling oil prices and a slowing economy. But Doyle updated his Canadian dollar forecast earlier this week, predicting the loonie could plummet to US$0.59 by the end of 2016. (Source: “Loonie set for unprecedented plunge to 59 cents U.S., top forecaster warns,” Bloomberg, January 12, 2016.)
“You could imagine the situation is worse today than in the 1990s,” Doyle explained, 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.” (Source: Ibid.)