Canada’s ‘loonie’ will continue to slide

The Canadian dollar (or ‘loonie’) is on the slide. In the past year it has dropped by 10% against the US dollar, hitting a four-year low of C$1.10. This is partly down to weaker commodity demand.

Canada’s wide range of raw materials, and emerging markets’ voracious appetite for them, lifted the loonie from around US$0.62 in 2002 to US$1.10 in 2007. The currency also benefited from ‘safe haven’ demand, with central banks diversifying into the loonie as an alternative to US dollars and euros. But with Europe looking more stable, this prop has gone.

Meanwhile, Canada’s economy has weakened now that a period of credit-fuelled consumption is ending. Many economists expect an interest-rate cut as a result, whereas US monetary policy is heading in the opposite direction, says Delphine Strauss in the FT.

Finally, close links to the US normally mean Canada benefits from upswings there. But years of grappling with a strong currency have made Canada’s manufacturers less competitive, shrinking the sector.

Oil transport bottlenecks also mean that Canada may benefit less from the US recovery than it has previously. It all suggests the loonie’s slide will continue. Morgan Stanley sees the US dollar buying C$1.19 by the end of 2015.

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
What a farce!

John Stepek on surviving the Greek fallout

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

From ADRs to Z scores – all the terms you wish you understood, but were too embarrassed to ask about.

Gervais Williams: if you want real dividend growth, buy small-cap stocks

Merryn Somerset Webb interviews small-cap stock expert Gervais Williams about how penny shares outperform blue chips 'again and again'.


Which investment platform is the right one for you?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from, with varying fees and charges. Find out which is best for you.


1 July 1972: Britain's first Gay Pride march is held 


On this day in 1972, the Gay Liberation Front organised Britain's first Gay Pride march from Trafalgar Square to Hyde Park.


Anatomy of a Grexit: how Greece would go about leaving the euro

Jonathan Loynes and Jennifer McKeown, economists at Capital Economics, look at the key issues and challenges of a Grexit, how it might be best managed, and set out a timetable for change.