Loonie sinks to 10-year low as oil settles below $50 a barrel
Resources, BoC rate cut could drive loonie below 70 cents in coming months
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TORONTO—The Toronto stock market suffered another session of declines on July 22 as oil settled below $50 for the first time in several months and the loonie tumbled to its lowest level in more than a decade.
The Canadian dollar lost 0.53 of a cent to close at 76.70 cents-US, a level it hasn’t reached since Sept. 1, 2004.
The loonie could fall even closer to 70 cents-US in the coming months on the dismal combination of weak recent Canadian economic data and a rate cut from the Bank of Canada last week, said Gareth Watson, vice-president of investment management and research at Richardson GMP Ltd.
“Those are the two things will really drive the currency in the short term,” he said. “It’s difficult to find a positive catalyst to get things back to 80 (cents) or above.”
Prices for crude oil are facing a similar battle for positive motivation after the latest figures from the U.S. government showed that a glut of oil supply drove inventories unexpectedly higher last week.
The September crude contract settled at its lowest level since April, closing down $1.67 to US$49.19 a barrel, after the data was released. The TSX energy sector fell 1.1 per cent.
Oversupply could prove to be a recurring problem in the coming months as some U.S. oil rigs wind down output in an effort to curtail production against demand.
Until a balance is reached, the expectations of traders who see an extended oversupply in the market will likely continue to prove correct, Watson suggested.
“There’s no question the short-term supply bears are winning the argument at the moment and probably will continue to win that argument for the rest of this year and into next year,” he said.
“It’s really difficult to paint a positive picture on where oil prices are going.”