Just How Low Will The Loonie Go?
The Canadian dollar fell to below 80 cents on Friday, battered by bad news at home and good news south of the border, leaving economists scrambling to predict just how low it could go.
The loonie ended the week at 79.3 cents U.S., sinking after a report showed Canada had its worst trade balance in nearly three years alongside news of an improving job situation south of the border that lifted the U.S. greenback.
In theory, the low loonie should help exports by making Canadian-made goods cheaper abroad. But Canada posted its largest trade deficit since 2012, of $2.5 billion in January on the back of plunging oil prices.
Meanwhile, the U.S. economy easily surpassed expectations and pumped out 295,000 jobs in February, bringing the unemployment rate to 5.5 per cent, the lowest it has been since 2008.
With little evidence that other sectors will pick up the economic slack from the sinking oil sector, along with record high household debts and a volatile labour market, economists have been racing to find the bottom.
“The Bank of Canada keeps touting the long-awaited rotation to exports and investment; I say the rotation is keeping itself very well disguised,” BMO chief economist Doug Porter wrote in a note Friday.
BMO predicts the loonie will continue to be at its cheapest rate in six years for 2015.
Scotiabank’s chief currency strategist Camilla Sutton said she expects the loonie to sink further, to as low as 75 cents.
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