Cautious Optimism Not Enough to Sustain Loonie

The Canadian dollar got a little bump on Monday, following the release of the Bank of Canada’s business outlook survey. However, the small gains were short-lived as economic realities and monetary policy divergence send the loonie lower against most majors today.

Loonie has be struggling quite a bit recently, and today is no exception. Yesterday, after a business outlook survey from the Bank of Canada that showed cautious optimism, the Canadian dollar advanced a bit. Today, though, it’s back to weakness.
One of the problems facing the loonie is the fact that the Bank of Canada maintains a dovish stance on interest rates. The economy is showing signs of slowing, and so the BOC is reluctant to raise rates. While other countries — especially the United States — are looking at tightening monetary policy, Canada is falling behind. Also, it’s not helping that oil prices remain persistently low. With oil one of Canada’s biggest exports, it’s no surprise that lower oil prices are having their impact.
This looks like it might be the beginning of long-term weakness for the loonie, and a return to its situation from before the financial crisis.
At 14:00 USD/CAD is up to 1.0902 from the open at 1.0847. EUR/CAD is up to 1.4902 from the open at 1.4832. GBP/CAD is up to 1.7903 from the open at 1.7787.

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