A Canadian dollar coin, commonly known as the "Loonie", is pictured in this illustration picture taken in Toronto January 23, 2015.MARK BLINCH/Reuters
Weak oil prices and a surging U.S. currency made another dent in the value of the Canadian dollar Thursday, adding momentum to the loonie's unprecedented downward spiral.
The dollar, which has fallen about 14 per cent in the past six months, closed at 79.30 cents (U.S.), down more than half a cent on the day.
On Wednesday, it fell below 80 cents for the first time since 2009.
The falling price of oil, and the moves by central banks around the globe to lower interest rates – except in the United States – has pushed up the value of the U.S. dollar relative to many currencies, not just Canada's, said Bank of Nova Scotia's chief foreign exchange strategist Camilla Sutton.
Still, she characterized the precipitous drop in the Canadian dollar over the last few weeks as "violent," and noted the loonie is the worst performing primary currency since the start of this year. The dollar may fall further if oil prices keep dropping, she said.
The dollar has fallen 20 per cent in the past two years, its quickest ever plunge over that period of time. In January 2013 it was just below parity with the U.S. dollar.
As well as the falling price of oil – a key commodity for the Canadian economy – the Bank of Canada's recent surprise quarter-point cut in interest rates has diminished the value of the dollar. Increasing talk that the central bank may cut the rate again as early as March is another factor. In the United States, the Federal Reserve Board has hinted that interest rate increases are pending.
The drop through the 80 cent level breached a psychological barrier for Canadians who have recently experienced a dollar at or above parity with the U.S. dollar, Ms. Sutton said. "It seems increasingly like we are moving to a world where we are going to be at a 75 or 80 cent dollar, as opposed to this dollar that hugs parity."
Bank of Montreal chief economist Doug Porter said the drop in the Canadian dollar over the past couple of years is unparalleled. "I always think of the late 1970s as being the real disaster area for the Canadian dollar, but this has even beat that."
Still, he added, it is important to note that the Canadian dollar is not doing badly compared to other currencies. "This is as much as U.S. dollar story as a Canadian dollar story. The U.S. dollar over the past year has been on fire … The Canadian dollar is hanging in there against most other currencies."
Many companies are more disturbed by the dramatic shift than by the absolute level of the dollar, he said. "Half the game for business is being able to make a viable and realistic plan, and it is incredibly tough [to do that] when financial variables are changing so rapidly." Mr. Porter's rule of thumb when the dollar drops is that "producers win, consumers lose."
For Canadian companies, the impact of the falling dollar depends very much on the nature of their business.
For Polaris Materials Corp., a British Columbia producer of construction aggregates which are mainly sold in the United States, the low dollar is entirely beneficial, said chief executive officer Herb Wilson. "We are comfortable where it is now, and if it goes a little lower it has no negatives for us." Low oil prices – which cut transport costs – and an improving U.S. economy also help, he said.
This is a huge and beneficial shift from the days of parity, and high oil prices, Mr. Wilson said. "It was painful and very damaging to have the Canadian dollar so strong."
Other companies are not so lucky. The falling dollar is a worry for Matt Campbell, chief executive officer of Rocky Mountain Dealerships Inc., a Calgary-based chain that sells mainly imported agricultural and construction equipment. However, there are some mitigating factors for the company, Mr. Campbell said: its competitors are in the same position, and its used inventory can now be easily sold into the booming U.S. market.
Over all, the low dollar "is a concern," he said, but "we will live through it without any fatal blows."
At Toronto-based safety shoe manufacturer Mellow Walk Footwear Inc., president Andrew Violi said the low dollar is a mixed blessing. It helps the export portion of the business, but the company does import some raw materials priced in U.S. dollars. Because Mellow Walk is trying to expand sales in the United States, on balance "there is probably more upside," Mr. Violi said.
The volatility of the dollar can make it hard to plan, he acknowledges, but that roller coaster has become the new normal. "Over the last 20 years we've managed to make shoes in Canada with a 60 cent dollar....to an on-par dollar. [We] roll with the punches."
Forecasts for the value of the loonie going forward vary sharply. Toronto-Dominion Bank economists project that the dollar will keep falling to a low of 75 cents early next year, before moving up to 85 cents by the end of 2016. TD economist Leslie Preston said she expects the Bank of Canada to cut interest rates further, before they begin to rise, so it will be some time before the dollar gains any upward momentum.
Bank of Montreal is predicting the dollar will bottom out in the middle of this year at around 77 cents or a bit lower, rising to 81 or 82 cents next year. Goldman Sachs, on the other hand, predicts the Canadian dollar could go as low as 71 cents by 2017.