Loonie leads the Aussie

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by Chris Becker

The Canadian dollar, or Loonie, has now fallen to 2004 lows on the back of a stronger USD and weaker oil price:

usdcad_fx_price_weekly.24aug01_to_23jun16

This has completely wiped out the appreciation in the Loonie (which is traded USDCAD, so turn the chart upside down!) since the entry of China into the WTC and the huge lift in the commodity boom from 2003 onwards.

How does this compare to Australia’s currency? If we re-jig the chart to CADUSD, we get the following:

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cadusd_fx_price_weekly.25apr08_to_14feb16
audusd_fx_price_weekly.01feb08_to_19feb16

The Loonie has fallen below its GFC low but the Aussie still has some way to go. While Australia is only in an income recession, the Canadian economy is suffering a technical recession with GDP growth of the last two quarters in the negative:

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source: tradingeconomics.com

And a dire outlook from there, as oil prices remain crushed and the domestic economy maintains a slow downturn, with last night’s retail sale data not looking good for the Canadian dollar. The Bank of Canada has left interest rates at 0.5% and is running out of monetary ammunition, compared to the RBA:

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source: tradingeconomics.com

Canada has the advantage of close ties with the world’s largest economy, although it too has suffered an out of control housing bubble. It provides another stark lesson to what happens when you listen to economists who say “drill, baby drill!” or “dig, baby dig!”