Whither the loonie?
The loonie started a noticeable downward trajectory during the second week of March.
By ATB Economics 23 March 2020 2 min read
Looking at the most important exchange rate to Canada—the value of the loonie versus the U.S. greenback—2019 was relatively uneventful. The oil price war and COVID-19 have spurred significantly greater volatility in the exchange rate and this is likely to continue as we move deeper into the uncharted territory that is the economy in 2020.
Even though small fluctuations in exchange rates can make a big difference given the billions of dollars in trade that flows across across the Canada-U.S. border, the daily closing value of the loonie versus the U.S. dollar only moved by about 3.5 cents last year.
Purely by coincidence, the loonie started 2019 at its lowest point vis-a-vis the U.S. dollar on the first business day of the year (0.735 USD on January 2) and reached its highest value on the last day of the year (0.770 on December 31).
After losing a little ground in January and February of this year, the loonie started a more noticeable downward trajectory during the second week of March. This was right after the oil price war between Russia and Saudia Arabia broke out and sent oil prices tumbling. The loonie closed just below 0.69 on March 18 and ended the week just below 0.70. Compared to the start of the year, the loonie has ratcheted down by over 7 cents. You have to go back to January 2016 to find a lower closing value.
There are a lot of moving parts when it comes to the Canada-U.S. exchange rate, but the loonie can be quite sensitive to oil prices—rising when oil rises, falling when oil falls—so the recent tumble is not a surprise.
The big question is: what’s next? As with so many other aspects of the economy at the moment, it is very hard to say. If oil prices stay low, this will continue to put downward pressure on the loonie. But, with the web of pandemic effects reforming on an almost daily basis, we will simply have to wait and see.
A note on COVID-19: The COVID-19 pandemic is having a major impact on the economy here in Alberta and around the world. The Owl will report on these impacts when good information is available while continuing to track regularly scheduled releases of economic data and long-term trends.
For additional information on COVID-19 and advice for the public, please visit World Health Organization or Alberta Health Services. Please go to atb.com for COVID-19-related updates from ATB Financial.