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
In the balance

How May 2015 could hit your pocket

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

Russell Napier: deflation is coming – hold on to your cash

Financial historian Russell Napier talks to Merryn Somerset Webb about the next deflationary bust – why it's coming, what it means for you, and how you can survive it.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


28 November 1660: the Royal Society is founded

After the restoration of the monarchy, members of the 'Invisible College' asked King Charles II to approve their scientific and literary society on this day in 1660.