Canadian dollar tumbles below 87¢ amid crude’s ‘relentless drop’

The Canadian dollar tumbled below the 87-cent mark today as oil prices resumed their “relentless drop.”

The loonie, as Canada’s dollar coin is known, touched a low point today of 86.59 cents U.S. and a high of 87.34 cents.

The loonie, as Canada’s dollar coin is known, touched a low point today of 86.59 cents U.S. amid oil's ever-deeper slump, which took West Texas Intermediate crude below $60 a barrel at one point. Its high was 87.34 cents, and it sat at 86.67 cents late in the day.

You can expect the loonie to continue to shed its feathers amid the woes of the oil market.

“I think the bias is still toward weakness in the Canadian dollar,” said George Davis, chief technical analyst at RBC Dominion Securities.

It will remain so, he added, until markets see signs of stability in oil prices, albeit at a lower level, and perhaps a bit of a counter-trend rally.

Until then, Mr. Davis said, markets will “err on the side of caution,” which means more pressure on the loonie.

“The current backdrop is negative for CAD and we would expect the currency to trend lower into 2015,” added chief currency strategist Camilla Sutton of Bank of Nova Scotia, referring to the Canadian dollar by its symbol.

“Oil prices reached fresh lows yesterday, in a relentless drop, which will weigh on domestic growth,” she added.

“Canadian equities continue to underperform, warning that there is likely domestic and foreign selling, and therefore selling of CAD. The Norges Bank cut rates today, tying the decision directly to the negative economic impact of oil prices, which highlights the significant impact oil prices are having on growth, central bank policy and currencies.”

The Norwegian and Russian central banks moved in opposite directions today, each reacting to the rout in the oil market.

The Norges Bank surprised markets by cutting its key rate by a quarter of a percentage point, while the Bank of Russia did the expected and hiked by a full point.

Each country, like Canada, is oil-dependent.

And though for different reasons, today's moves by the Norwegians and Russians highlight the struggles of the Bank of Canada, which just yesterday warned of the threat from the collapse in oil prices.

All of this suggests, by the way, that Bank of Canada Governor Stephen Poloz and his colleagues will be in no rush to raise their benchmark rate from its current 1 per cent.

“On balance, we continue to believe that the bank will be extraordinarily patient with interest rates, likely standing still until next October,” chief economist Douglas Porter of BMO Nesbitt Burns said yesterday after the central bank released its review of the financial system.

“The slide in oil, and the associated downgrade to Canada’s growth and inflation outlook, tilt the risks to a later move, despite their slow-burn concerns on the housing market.”

The Globe and Mail