Canadian Dollar Hits 11-Year-Low Against U.S. Dollar
Greenback last hit this level in August 2004
By David George-Cosh
The Canadian dollar sank against the U.S. dollar early Monday, hitting a new 11-year low as investors capitulated amid a broad selloff in global markets.
The U.S. dollar was recently at C$1.3210 from C$1.3187 late Friday, according to data provider CQG. The greenback earlier reached as high as C$1.3290, a level it hasn’t reached since August 2004.
“There’s certainly some panic out there,” said Karl Schamotta, director of FX Strategy at Cambridge Global Payments.
Along with other commodity-linked currencies, the Canadian dollar was hit hard early Monday by plummeting oil prices. Crude prices fell to new multiyear lows amid lingering concerns about global economic growth, with the Nymex October contract down 4% to about $38.84.
Interest rate expectations have diminished substantially across all major currencies, including the U.S. with economists now seen pushing back their forecasts for the next Federal Reserve rate increase to December.
“The reality is that we are looking at a global economy suffering widespread disinflationary conditions,” Mr. Schamotta said.
The Canadian dollar, which is closely correlated to oil prices, reacted swiftly, as investors see weaker oil prices weighing heavily on the Bank of Canada’s next monetary policy move.
“The rout in global equity markets is being magnified in Canada through the energy complex, and the combination of deteriorating financial conditions and weaker oil prices presents serious hurdles beyond the very near-term economic outlook,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.
The market is now pricing in about a 75% change of another 25-basis-point rate cut over the next 12 months, Mr. Chandler said.
With the Canadian dollar now hitting new lows, currency analysts expect the next major level for the U.S. dollar to climb to is around C$1.3380, although C$1.35 is a key figure that is within reach, Mr. Schamotta noted.
In the absence of major Canadian economic data this week, the Canadian dollar will continue to closely monitor global financial conditions for direction.
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