9 December, AtoZForex, Lagos – The Canadian dollar continues to suffer on the back of the increasing oil glut as the Organization of Petroleum Exporting Countries effectively abandoned their policy of limiting production in their last meeting on Friday. The currency dropped to an 11 year low as the glut is expected to weight down further on the economy.
Economic data slump
Recent key economic data from the region has been showing a slump as recent unemployment rate unexpectedly increased last month, and the merchandise trade deficit also widened more than expected. With the falling oil prices, dipping below $40 per barrel after the OPEC meeting, the CAD is expected to be up for further losses.
Analysts see a continuation of this trend, as long as prices of oil stay low. “The catalyst to push it to a new high in USD-CAD today has been the slide in crude oil,” said George Davis, chief fixed-income technical analyst at Royal Bank of Canada’s RBC Dominion Securities unit in Toronto. “The uptrend in dollar-Canada has been very solid, with the market preferring to buy dips.”
Stephen Poloz defends economy
Back in September, the Bank of Canada Governor Stephen Poloz defended the economy, clarifying that it will bounce back soon, looking at the big picture, rather than the short term fluctuations.
“Canada has seen this movie before,” “We can’t do much about resource price shocks. But our (floating exchange rate) policy can help the economy adjust to them. In particular, our floating exchange rate helps absorb some of the impact of the price movements.”
A few months down the line and the currency remains down 15 percent year on year. Crude oil which used to be Canada’s biggest export until this year, is also down 40 percent. Even though the Bank of Canada has again reiterated its confidence in the economy in this month, a Bloomberg survey of economists forecasts policy makers will have to keep cutting rates to boost the economy.
In the last policy statement from the BOC introduced a new framework which involves using negative interest rates and other unconventional monetary policies. Although Gov. Stephen Poloz has stressed that the bank is not preparing to use any of these measures even as the ailing energy prices continue to weight on the economy.
Think we missed something? Let us know down in the comments section.