Loonie's Longest Losing Streak Since 1971 Portends More Losses

  • Drop in crude oil, economic slack undermine Canada's dollar
  • Bets central bank will cut rates next week reach 61 percent

The Canadian dollar is on its longest losing streak since at least the 1970s as speculation mounts that the central bank will cut interest rates back to the record low only seen amid the 2009 financial crisis, with almost nothing left to drive the country’s economy.

The currency has allen for 11 straight days against the U.S. dollar through, the longest run of daily losses since the country ended its currency’s peg to the greenback and let it trade freely in 1971 . The streak surpassed a nine-day run in April 2005, and Friday touched an almost 13-year low.

The declines come during a week when market turmoil in China helped push crude oil, until last year Canada’s largest export, below $30 per barrel for the first time in 12 years. That stoked speculation there will be no quick return to the near-$100 per barrel oil that fueled growth the past decade. Recent domestic data have shown few signs that other parts of the Canadian economy are stepping in to fill the void left by oil.

"It’s a perfect storm for the Canadian dollar," said Andrew Kelvin, senior fixed-income strategist at Toronto-Dominion Bank. "Oil is at levels people hadn’t been considering except as a worst-case scenario."

The streak began on Jan. 1. That’s when the loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, weakened 0.1 percent, according to Bloomberg generic pricing, which is based on input rates from currency price contributors.

On Friday, it weakened another 0.8 percent to C$1.4482 per U.S. dollar as of 9 a.m. in Toronto. One Canadian dollar buys about 69 U.S. cents.

Central Banking

The slide in oil has seen the market increase odds the Bank of Canada will cut interest rates to 0.25 percent at its Jan. 20 meeting to 61 percent from 17 percent on Dec. 31, according to Bloomberg calculations based on trading in overnight index swaps. Canada’s benchmark five-year and 10-year bond yields touched record lows this week.

A wave of economists are projecting the central bank will cut interest rates next week with the country’s shrunken manufacturing sector still failing to win back all the ground it lost after the 2009 recession.

Rate Cut

Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Bank of America Corp. are among the seven major forecasters calling for a repeat performance of the central bank’s January rate cut in 2015. That reduction was the first of two the bank deployed during 2015 to guard against oil’s collapse.

Oil’s fall, combined with the rate cuts, have contributed to the loonie declining about 32 percent during the past three years. The three consecutive annual losses have combine to produce the loonie’s longest, steepest drop as a freely traded currency.

Macquarie Group Ltd.’s David Doyle, Bloomberg’s top-ranked forecaster for the Canadian dollar last year, Tuesday said he expected the currency to fall to a record low 0.59 U.S. cents, or C$1.6949 per U.S. dollar, by the end of the year as he added his voice to those predicting a rate cut next week.

"It’s three strikes and you’re out," Nick Bennenbroek, head of currency strategy at Wells Fargo Securities LLC, said by phone from New York. "With China and oil prices and the Bank of Canada all against the Canadian dollar, it’s sort of flat on its back right now."

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