TORONTO – The loonie continued to slide on Thursday, reaching its lowest level since March 2009 after losing more than a cent against the greenback following the Bank of Canada’s rate cut on Wednesday.
The Canadian dollar declined 0.3 of a cent to close at 77.10 cents U.S. on the day after the central bank cut a quarter-point from its benchmark overnight lending rate and slashed its outlook for economic growth.
Todd Mattina, chief economist and strategist at Mackenzie Investments, said the Canadian dollar could fall even lower if domestic growth continues to be sluggish.
He said the central bank could cut rates further later this year if the economy continues to stumble.
“There could be pressure, downside risk in the growth outlook,” he said.
He said the Canadian currency was also hit by testimony from Federal Reserve chairwoman Janet Yellen in Washington indicating that the United States could begin to raise rates this fall, widening the gap between the two currencies and making the Canadian dollar even less attractive for investors searching for a return.
The S&P/TSX composite index closed up 68.80 points to 14,731.08, building on a 63-point gain on Wednesday.
Mattina said Canadian markets have responded positively to the rate cut and signs of a recovery in the U.S.
The Dow Jones industrial average ended the day up 70.08 points at 18,120.25, the Nasdaq index rose 64.24 points to 5,163.18, and the S&P 500 advanced 16.89 points to 2,124.29.
The price of oil continued to fall as the August crude contract closed down 50 cents to US$50.91 a barrel.
While economic growth seems likely to swing into the positive in the second half of the year, the country will be unable to rely on a bounce back in energy prices, Mattina said.
Futures traders aren’t expecting a rebound in the price of oil until 2017, Mattina said, which means Canada’s recovery needs to come from non-energy industries.
The price of oil has fallen by more than half since its peak in July 2014.
Mattina said there were a number of issues driving down the price of oil, including cooling demand in China, a slowdown in global growth and the deal on Iran’s nuclear program that will open up that country’s oil supply to international trade.
“That weighs on an already supply-heavy oil market as demand is pressured,” he said.
On Wednesday, Bank of Canada governor Stephen Poloz said the poor performance of Canadian exports over the first half of the year despite the weak dollar was “puzzling.”
The August gold contract fell $3.50 to US$1,143.90 an ounce and the August contract for natural gas was down 6.4 cents to US$2.85 per thousand cubic feet.