The weak Canadian dollar is expected to take another wallop following a decision by the US Federal Reserve to raise interest rates south of the border.
The U.S. central bank announced on Wednesday it was ending a seven-year period of near-zero borrowing rates, and lifting it’s key interest rate by a-quarter point.
Following the announcement, the Canadian dollar fell to an 11-year low at 72.40 cents U.S.
Canada’s central bank is expected to maintain it’s key lending rate after cutting it twice earlier this year in hopes of providing a positive boost to the struggling economy.
Analysts believe that with the central banks moving in opposite directions, the loonie faces more downward pressure because investors look at interest rate policies when choosing where to put their money.
Our commodity-linked currency is also seen as a less appealing option with oil prices on the decline, which hasn’t led to a drop in pump prices as we might normally expect.
That’s because the exchange-rate more than offsets the decline, as imported gas is priced in U.S. dollars.
The price for benchmark oil slid below US$36 a barrel on Wednesday from highs above US$108 little more than a year ago.
Some researchers expect the gap between the Canadian and American interest rates to stay wide throughout 2016, especially if the Canadian economy continues to struggle.
It’s obviously bad news for Canadians looking to travel down south, but exporters who pay their costs in Canadian money and sell their products in U.S. dollars are reaping the benefits.