Oil and threat of global conflicts weigh on risky loonie
The Canadian dollar is dropping to levels not seen since the summer of 2003. (Pawel Dwulit/Bloomberg)
The Canadian dollar lost more than half a cent this morning, pushed down by oil prices and widespread risk aversion, going to below 71 cents US.
Early Wednesday, the loonie was changing hands at 70.90 cents US, down 0.55 of a cent. That’s the lowest level on record for Canada’s currency since the summer of 2003, when the dollar was on a multiyear march upwards from below 62 cents, which it briefly hit in 2002.
The reasons for the loonie’s weakness are a mix of old and new, as oil prices sank back to $35 US per barrel, but also “added pressure from the broader market tone of risk aversion,” Scotiabank foreign exchange strategist Shaun Osborne said in a note to clients.
Broadly speaking, the Canadian dollar is perceived to be a riskier asset than other currencies, such as the U.S. dollar and the euro. Anything with risk attached to it is getting savaged in the current market, as investors consider the possibility of conflict between Saudi Arabia and Iran, coupled with Tuesday’s news that North Korea may have detonated a hydrogen bomb.
On Tuesday, Bank of Montreal chief economist Douglas Porter told a gathering of leading economists that the loonie could fall below 70 cents US before it begins to recover.
