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article imageCanadian dollar drops below 80 cents U.S.

By Ken Hanly     Jul 2, 2015 in Business
Ottawa - A Reuters poll predicted that the loonie, or Canadian dollar, is likely to decline even further in the coming months. The weakness of the dollar is tied to low oil prices and weak economic outlook for the near future.
In March, the loonie fell to 77.92, its lowest level since early in 2009. Analysts did not see a decline of that magnitude. First quarter economic results were disappointing with a further decline in April. Some think interest rates may be trimmed again by the Bank of Canada to spur growth, while in the U.S. the Federal Reserve could raise rates possibly as soon as September. These divergent policies would lead to investors favoring the U.S. dollar and to a further decline in the loonie.
The median value in a poll of 49 foreign exchange forecasters for a month from now put the loonie at 80.16 US cents.. On Thursday, July 2, the loonie was already trading below 80 cents weaker than the mean prediction a month from now. The loonie was 79.58 cents US, down almost half a cent from its close on Tuesday before the holiday. The Toronto stock market was moving up modestly. A graph of recent value of the US dollar in relation to the Canadian loonie can be found here.
The loonie had already fallen on Tuesday after news of the surprise contraction of the Canadian economy in April. Bloomberg had surveyed 20 economists and none had predicted the decline. Median prediction was for a very modest 0.1 increase however. Jeremy Stretch, head of foreign exchange at the Canadian Imperial Bank of Commerce(CIBC) said: “If we’d been listening to Governor Poloz then he’d been telling us we’d be seeing a front-loaded slowdown which was going to be largely confined or contained by the end of Q1, That’s obviously not the case.”
Speculators must be betting on a further decline. A net of more than 17,000 contracts are short, an increase of 5,000 within a week according to data from CFTC and Thomson-Reuters. The Bank of Canada surprised the markets with an interest rate cut to .75 in January of this year. If another cut comes in July of this year, it will no longer come as a surprise given the performance of the Canadian economy.
Canadian bills are now made of plastic. One and two dollar values are coins, the loonie, and toonie, as described in the appended video. The one cent coin has been taken out of circulation. It cost more to make them than their value.
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