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Calls for an interest rate cut grow louder as loonie's losses accelerate

Tags: Loonie

The Canadian discount is growing. The loonie sank even further below 70 cents U.S. on Thursday as economic uncertainty roils global markets. With Bay Street’s targets changing by the day, the federal finance minister fessed up that Ottawa is only a witness to the currency’s moves.

“Canadians are more negative on the outlook for their economy and the world economy than probably anyone on the planet,” Jonathan Golub, Chief U.S. Equity Strategist, RBC Capital Markets, told BNN. “I think the negativity is probably a buying opportunity.”

And as pressure rains down on the Canadian economy, the odds of a rate cut next week are growing. Investors are pricing in almost a 50-percent probability that Stephen Poloz will ramp up stimulus on January 20th. That’s up from just a 26% chance at the start of the week.

On Thursday, the loonie landed at 69.65 cents US, at the Bank of Canada close at 4 p.m. ET. And on Wednesday, the Canadian dollar closed below 70 cents for the first time since 2003 as plunging oil prices and global economic fears hammered world markets again.

“We are playing close attention to the state of the Canadian dollar,” federal Finance Minister Bill Morneau said at a news conference shortly after the Bank of Canada close on Wednesday. “I believe there are opportunities … there are also challenges.”

He did admit that the level of the currency is “not in our control.”

Sid Mokhtari, a technical analyst at CIBC Capital Markets says he's seen the relationship between plunging oil prices and the loonie grow stronger in recent weeks --  a trend he believes could push the currency lower.

 

"I really think there is a good chance that we will pierce that [70 cent U.S. level], and in a sustainable way, go lower," he told BNN.

Colin Cieszynski, chief market strategist at CMC Markets, says the 70-cent mark constitutes a “pretty significant psychological hurdle.”

Cieszynski says the loonie’s “relentless drive lower” has been motivated primarily by falling oil prices — and their potential implications for monetary policy.

“There’s been a lot of growing speculation that the Bank of Canada’s governor [Stephen] Poloz could kick off 2016 with a rate cut the same way he did in 2015,” he said.

“There’s a lot of concerns that the falling oil price could lead to more layoffs in the oil sector and deepen the recession that we’re seeing in the oilpatch, so there is a growing possibility of that, although up until now he’s been more content to let the falling loonie do a lot of the stimulus work for him.”

 

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