Canadian Dollar Hits its Lowest Point Since November
The Coronavirus Outbreak and Declining Oil Prices Decrease the Value of the Loonie
The Canadian dollar fell to a two-and-a-half-month low at 3:55 pm on Friday as a result of the coronavirus outbreak weighing on investor sentiment in Canada, offsetting reduced bets for a Bank of Canada interest rate cut after a solid jobs gain showing in the last 2 months.
February 7th, 2020 marked the lowest point of the Canadian loonie since the turn of the decade, trading at 75.18 U.S. cents in the afternoon, or 0.1 percent lower at 1.3301 to the greenback. The last time the Canadian dollar was this low was November 21st of last year. The past week has been very rough for the Canadian dollar, having dropped 0.5% as investors grow increasingly concerned about declining crude oil prices and the coronavirus outbreak in China, which disproportionally affects Canada’s commodity-based economy.
Unfortunately, despite last month’s positive economic developments — which resulted in over 35000 new jobs introduced to the Canadian economy and a near-record low unemployment rate of 5.5 percent, these newfound issues now threaten the current healthy state of the economy.
One of the two major reasons that the Canadian dollar has dropped to a two month low is the decline in crude oil prices, which had dropped in value as Russia announced that it would need more time before committing to output cuts alongside other producers as the coronavirus outbreak in China lowers the demand for the commodity. As a result, the Canadian bond yield also faces declines, as the 10-year yield is down 4.2 basis points at 1.327 percent.
However, many analysts paint the current situation in a much more positive light.
These analysts claim that the Canadian dollar will likely climb in value over the coming year, as the economic threats proposed by the outbreak in China will likely fade before the end of the first quarter as a result of the government of China’s attempts to contain the virus. This theory; however, is challenged by health experts, who claim that the outbreak in China is currently far from contained.
“A lot of bad news is priced in at this point on the virus front,” stated Shaun Osborne, the current chief currency strategist at Scotiabank. “We think that the global economy should be able to move on from this fairly soon if we can see some signs that this virus is contained.”
Change in the value of the Canadian Dollar in Comparison to the American Dollar within the last Month.
In addition to the possible containment of the outbreak, many bullish analysts firmly believe that Bank of Canada will not decrease interest rates in 2020, which is backed up by the Bank of Canada’s recent records — having maintained the interest rate constant for nine consecutive meetings, even amidst the peak of the America-China trade war.
“We are optimistic that the worst is behind us for the economy,” stated Stephen Brown, a senior Canadian economist at Capital Economics. “Improved domestic prospects, as well as a rebound in global GDP growth, means that the Bank is likely to keep policy on hold this year.”
These positive sentiments seem to be shared by the international monetary fund, which has projected global economic growth of 3.3 percent in 2020, a steep increase from 2019’s 2.9 percent. The IMF cites promising job growth in the global manufacturing industry and decreasing tensions in global trade wars as the main reasons behind the increase in expectations.
For now, money markets are pricing in an interest cut by the Bank of Canada by June. However, if the expectations for a cut fall, it could mean a much brighter future for the Canadian dollar.
