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Canadian Dollar Sinks Below 95Ę from Near-Parity in Less than Two MonthsMonday, June 24, 2013 > 11:50:11
(The Globe & Mail – Michael Babad)
The Canadian dollar has now slumped from almost parity to the 95-cent area in less than two months.
The loonie, as the dollar coin is known in Canada, fell sharply today from Friday’s level amid generally soft markets and a rising U.S. currency, slipping below 95 cents U.S.
“Markets are pretty weak right across the board, the U.S. dollar is higher, U.S. yields are higher,” said chief currency strategist Camilla Sutton of Bank of Nova Scotia. Feeding into the global angst today are fears related to China’s financial system.
For Canadian exporters, of course, a lower loonie is welcome as it makes their goods cheaper. It’s also welcome news for retailers hoping to keep shoppers from skipping across the U.S. border. For travellers to the United States as summer vacation season gets under way, however, it’s not so welcome as they have less buying power.
Last week alone, the loonie lost more than 3 cents on the U.S. dollar’s rise and softer Canadian economic readings.
“I can’t be sure this week will be any calmer, but look for moves in the U.S. dollar to be the primary driver for the loonie for a while yet,” said Benjamin Reitzes of BMO Nesbitt Burns.
The fall in the Canadian currency today comes amid slumping markets in general, as the volatility of last week, sparked by signs of the Federal Reserve preparing to pull back from, or taper, its asset-buying stimulus program, continues.
“Unless we see a remarkable turnaround this week then we are likely to see the first negative month for European equities this year, as well as the biggest monthly decline in stocks since May 2012,” said senior analyst Michael Hewson of CMC Markets in London. “The sharp reaction from financial markets to even the suggestion that the current Fed stimulus program may be coming to the end of its road has prompted a sharp selloff in not only stock markets globally, but bonds and commodity prices,” he added in a research note.
“This mere suggestion of stimulus withdrawal has shown how fragile the current stock market rally has been and it could be some time before markets settle down to where they should be as investors start become more discerning about company fundamentals.”
Tokyo’s Nikkei slipped 1.3% today, Hong Kong’s Hang Seng 2.2%, and the Shanghai composite 5.3%. In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 1.3% and 2.1% by about 8:25 a.m. Dow Jones industrial average and S&P 500 futures also lost ground.
“The Shanghai sell-off and the decline in the commodity suite owing to a stronger dollar has resulted in a palpable investor reticence to indulge in risk assets in European trade today,” said senior market strategist Brenda Kelly of IG in London.
“Chinese stocks have entered bear market territory despite the intervention from the People's Bank of China to assuage the continued liquidity crunch amid renewed concerns about banking sector stability,” she said in a research note.
“With the U.S. 10-year yield rising to a high last seen in August 2011, investors are clearly still confused and uncertain on the Federal Reserve’s tapering policies.”