BUSINESS

Loonie Drops To Two-Week Low, Analysts Seeing Bad Signs For The Future

Canada and people working in currency exchange Ottawa and across the country saw the Canadian dollar, colloquially known as the loonie thanks to the common loon on the C$1 coin, set its lowest value in a two-year time span on the 25th of May. The drop in pricing was caused by lower oil prices as well as geopolitical tension across the world.

The loonie had already depreciated in value by 3% earlier this year, and sat at US¢77.11 on the 25th of May. Analysts across the country are pointing to the risks facing the loonie could escalate by June, further applying pressure on the Canadian dollar.

The Canadian Imperial Bank of Commerce Capital Markets‘ Head of North American Foreign Exchange Strategy, Bipan Rai, says that the downside risks plaguing the loonieare caused by the current geopolitical environment, like the NAFTA talks and the uncertainty regarding Canada’s exemption from the US’s new steel and aluminum tariffs that could be renewed on the onset of June.

He says that the CIBC, alongside the currency exchange Ottawa is keeping an eye on the loonie’s price behaviour, but the problem could reach tipping point if the loonie-US$ trade rate drops below the ¢76.40 to ¢77.00.

Canada’s currently exempt from the new tariffs the Trump administration on steel and aluminum, but the country’s exemption is set to end by the start of the June, with officials from the US suggesting that they could impose the tariffs on Canada if the US doesn’t get better terms in the NAFTA deal.

On top of that, the US launched an investigation on whether imported vehicles might pose a security threat; an investigation would allow the US to impose tariffs if it’s proven that its national security is under threat.

Meanwhile, US’s oil prices have dropped again for a 3% drop for the week, which came following top producers from Russia and Saudi Arabia could boost their production on the latter half of 2018, which will increase the supply in the market. The loonie is heavily affected by changes in oil prices as crude oil is one of the big exports of Canada.

Should the Bank of Canada take a more aggressive outlook regarding the interest rates with their policy statement, the loonie can go up modestly.