Canadian Dollar approaches 70 cents US – how low will it go?

The last time the Canadian Dollar had a 60-something US cents handle the calendar read 2003. Most retail forex brokers we know today hadn’t yet been founded.

Affectionately known as the Loonie thanks to the picture of a loon on one side of the coin (Canada’s two-dollar coin is called a Toonie), the CAD is rapidly approaching a dubious milestone, as its value relative to the USD continues to deteriorate. Late Friday the USDCAD was trading at about 1.4173, meaning each Canadian Dollar is now worth just 70.6 US cents, down from 72 cents at the beginning of this month. and from more than 85 cents at the beginning of 2015.

Not so long ago, in early 2011, the Loonie was worth MORE than the USD, trading as high as USD $1.06.

The question many traders (and worried Canadians) seem to be asking is: How low will it go?

And, when will it turn around?

The Loonie is clearly tied to the price of oil, which also continues to plunge to new depths. However it isn’t just that. Part of the problem is that Canada’s entire economy is tied to energy prices, including Canada’s housing sector, which seems to be holding up the economy right now and which survived the housing bubble and economic collapse suffered in 2008 by Canada’s largest trading partner and neighbor, the USA.

Canada’s ‘other’ economy, manufacturing and exporting, has suffered long term decline and decay but, ironically, might see a renaissance thanks to the low domestic currency. You can bet that a lot of US corporations in both the manufacturing and services sectors are looking to outsource more and more to Canada to take advantage of the relatively low price of Canadian-Dollar denominated labour.

Beyond energy price linkages, the USDCAD pair seems to follow very long term trends. Trend up for 5 years, trend down for 5 years.

Canadian Dollar price graph

Canadian Dollar in USD, past 10 years. Source: XE.com.

So the question for those who follow the Loonie simply is – are we finally near the end of the current 5 year down cycle, which started in early 2011? Or will this Canadian winter freeze last even longer?

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