The Canadian dollar had a very bad day as it set a record one day fall to drop below 81 cents US, changes to the US bailout plan blamed.
The loonie took a deep dive today as it plunged below 81 cents US. the reasons for the dollar's fall are lower commodity prices, plunging stock markets and uncertainty about the economy.
The dollar started the day down but
took a big dive as U.S. Treasury Secretary Henry Paulson announced changes to the US$700-billion rescue plan for troubled financial firms.
As the day passed the dollar kept falling dropping by as much as 2.84 cents in late afternoon. It closed at 80.81, down 2.77 cents US.
This is a record: the biggest one-day drop on record at the Bank of Canada and surpassed the 2.69-cent fall on Oct. 10, when the currency spent much of the day down more than three cents before rallying.
The loonie and other resource-linked currencies are being driven down by falling prices for commodities such as oil, metals and minerals and by global economic uncertainty.
"Commodity currencies (which include Canada's) are under relatively severe pressure right now and that's consistent with the decline in crude oil prices," said Steve Malyon, a Scotia Capital currency strategist.
"And we're also seeing equity markets under pretty significant pressure and those, really, have been two key ingredients going back over the past several weeks and even the past several months."
Vacations to Arizona or Florida become more expensive for Canadian travellers this winter, as are imports of everything from Florida oranges and lemons to California lettuce and industrial machinery from Ohio or auto parts from Michigan.
The dollar may drop even further possibly into the mid-70 cents US - especially if oil prices continue to tumble.
Light, sweet crude for December delivery fell nearly six per cent or $3.50 to settle at US$56.16 a barrel on the New York Mercantile Exchange, the lowest closing price since January 2007. Oil prices have plunged more than 60 per cent in four months from record highs near over US$147 a barrel in July.
The lower fuel prices provide some relief for energy users, including drivers, but on the otehr hand work to undermine what had been one of the country's strongest sectors - the oil and gas industry.
Canadian Natural Resources (TSX:CNQ) was down 10.8 per cent at $47.69, EnCana Corp. fell (TSX:ECA) and Petro-Canada (TSX:PCA) dropped 6.1 per cent to $24.20, late in the session.
The treasury department appears to be moving away from the initial intent of relief program. The program will not be used to purchase troubled mortgages and other assets from banks as originally planned, but the U.S. government will continue to invest banking companies to provide them with the capital they require to weather the credit crunch.
"So it sort of begs the question of how we're going to establish a market for these distressed assets and that may be contributing to some nervousness," Malyon said.
"But we're also seen some negative announcements regarding large corporations and negative earnings news. I just think there's a general air of uncertainty and nervousness out there that's contributing to the weakness in equity markets and that's translating into weakness commodity currencies."
Canada's central bank plans to inject an additional $8 billion into the country's tight money markets under new liberal terms.
The new Canadian-dollar term loan facility will be conducted in four auctions of $2 billion each over the next few weeks.
Finance Minister Flaherty said Ottawa will buy another $50 billion in residential mortgages from Canadian banks to ease the credit crunch they're facing as a result of the ongoing global financial upheaval.
Malyon doesn't think Flaherty's announcement had much impact on the Canadian dollar.
