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Canadian dollar hits 11 year low with no end in sight

The Loonie hit on 11 year low closing the day at 1.3785 / 1USD. Last time the dollar was this low was May 2004.

Apart from immediate consumer impact felt in the purchase of consumer goods and vacations, the depreciating currency is indicative of deeper problems for the Canadian economy. Canada is predominantly a commodity based economy which means when major commodities are slipping so too will the Canadian economy. With oil hovering around $35 a barrel, investment in these particular industries has been muted.

A short term exogenous factor affecting the currency was the recent Federal Reserve (US) interest rate announcement raising the benchmark interest rate to half a percent. On leave for an exchange market when benchmark interest rate increase, the currency is comparatively more attractive and therefore I appreciates vis-à-vis other worldwide currencies. As the American currency appreciated the Canadian currency depreciated.

Although Canadian goods appear cheaper and therefore some export markets are seeing an increase in business, the overall health of Canada’s economy still remains intricately linked to the commodity market, and in particular, the oil market, which is still years away from recovering (assuming it every will return to 2013 levels).

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