By Pete Evans, CBC News
A day after setting a new 11-year low, the Canadian dollar today shed another half-cent to 73.60, while the benchmark Toronto stock index slid to a two-year low.
Crude oil prices have declined since last week after OPEC effectively said over the weekend that it would no longer limit the amount of oil it was willing to sell on the market. In practice, that says the oil cartel is prepared for a race to the bottom on prices in order to keep its market share at any cost, and drive more expensive North American oil companies out of business.
The loonie is also moving lower against the backdrop of the U.S. Federal Reserve getting ready to raise rates as early as next week — something that would likely send the loonie even lower.
Bank of Canada governor Stephen Poloz delivered a speech on monetary policy to a Toronto business audience Tuesday afternoon, saying that he would consider dropping interest rates into negative territory, if needed, to stimulate the economy.
The bank has twice this year moved to lower its benchmark interest rate, but Poloz was clear that he was speaking theoretically and that his remarks “should in no way be taken as a sign that we are planning to embark on these policies.”
A barrel of benchmark WTI oil closed down slightly at $37.51 US a barrel, after earlier having been down below the $37 level and in the process breaking a six-year low that it set Monday. Prior to that, the world hadn’t seen crude oil prices that low since the depths of the global recession in 2008 and 2009, when oil bottomed out at just under $34.
The Toronto Stock Exchange’s main index finished down 120 points, or 0.9 per cent, at 12,922. That follows a 316-point drop the day before and drags the TSX to levels not seen since October 2013.
Currency ‘under pressure’
Oil’s slump is hammering Canada’s currency almost as hard.
“The focus is on oil prices, with WTI and Brent trading at levels last seen in early 2009,” Scotiabank currency strategist Eric Theoret said. “Downside [Canadian dollar] risk is high.”
“If you are looking to play weak oil prices, you would want to sell the Canadian dollar and the Norwegian crown,” said Jeremy Stretch, head of currency strategy at CIBC World Markets. “With oil prices falling and some even talking about oil falling to $30 a barrel… their currencies will remain under pressure.”
The loonie has dropped by more than 15 per cent in the past year compared with the U.S. dollar.
At least one analyst said the loonie may have hit bottom, and takes the contrarian view that some sort of modest rebound in 2016 is possible.
“Our bearish views on the Canadian dollar at the start of the year have proven well founded, but we see no good reason to expect it to tumble much further,” David Madani at Capital Economics said in a research note. “While there are near-term downside risks, we anticipate that energy prices will rebound next year [and] if we’re right, the Canadian dollar could recover too.”