Canada: Loonie plunges to the lowest level since February 2016 in March
On 27 March, the Canadian dollar (CAD) ended the day at 1.40 per USD, marking a 4.2% depreciation over the same day the month prior. Moreover, the loonie was down 7.1% on a year-to-date basis and was 4.1% weaker than on the same day last year.
The CAD had been falling gradually in January and February, mainly the result of a moderating oil demand growth outlook as the Chinese economy started to totter. However, in March, the loonie plunged rapidly in tandem with energy prices following a breakdown of OPEC+ discussions on production curtailments. OPEC+ producers are now expected to take a price-targeting approach, rather than a production-targeting approach, and are expected to flood the oil market in April when quotas are set to expire. This comes amid a sharp decline in global economic activity and, consequently, flagging demand for hydrocarbon products, causing prices to fall to near two-decade lows in recent days. Exacerbating matters, the Bank of Canada (BoC) held three meetings in March, cutting the target for the overnight policy rate by 50 basis points each time, in an attempt to shore up liquidity in the financial system. This put further downward pressure on the CAD; however, in late March the BoC announced measures in coordination with other major economies to ensure ample supply of the greenback in the global economy, which aided the loonie somewhat.
Looking ahead, the Canadian dollar will remain hampered this year by a bleak economic outlook, frail external sector, depressed oil prices and a significantly looser monetary stance. Nevertheless, a recovery in economic activity after Covid-19 passes and a rebound in the external sector should strengthen the loonie somewhat by year-end.