WINNIPEG — Weak energy prices, concerns over the Chinese economy and disappointing domestic data are just some of the factors dragging down the loonie, according to a financial expert.
“It’s hard to imagine the currency getting back up to 80 cents U.S., particularly if the (U.S.) Fed does go ahead and cut rates at some point this year,” said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets in Toronto.
While Monday’s stock market plunge in China caught many off guard, there were already pressures building on the Canadian dollar, according to Chandler.
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“Canadian (economic) data was disappointing. You have to cast that against the volatility in equity markets and what that might imply for Canadian growth in the mid-term,” he said, adding his group had forecast the dollar to sink to its current level.
The drop in oil prices has been the main catalyst with suppliers around the world pumping out record supplies even while values plunged.
“OPEC, shale exploration companies in the U.S. are still producing it in good measure. So there’s a number of things that are conspiring to hurt oil and with it dragging down the Canadian dollar,” said Chandler.
On top of that, he says the equity market is also in trouble.
“But it’s tough to say how heavily China’s real economy has been impacted by it. It’s obvious that is gnawing on markets and some of this could reflect an overall growth slowdown right now.”
Fortunately, he says the domestic economy in the United States is looking quite good despite the relative gloom.
“The Bank of Canada has an easing bias, which is weighing down the currency.… Getting back up to 80 cents would be a tough challenge for the currency,” he concluded.
