Loonie takes biggest one-day fall in months

TORONTO, (Jan. 30, 2004) — Despite economic expectations of peaking at 80 cents US sometime this quarter, the Canadian loonie had its most significant one-day tumble in eight months, closing down 1.17 cents to 75.45 cents US.

Falling interest rates in Canada and a surge of the U.S. dollar contributed to the drop in the Canadian loonie on Wednesday — just one day after gaining half a U.S. cent. The dollar has been under pressure since the Bank of Canada cut interest rates last week by a quarter of a percentage point. Pressure on the loonie increased when the U.S. Federal Reserve hinted that U.S. interest rates could move higher in the near future.

Late last year economists were predicting the dollar could get as high as 80 cents US this year. But the currency stalled at around 78.6 cents US this month. An economist told Canadian Press that the economy is starting to become uncomfortable with a dollar edging close to 80 cents US. A high Canadian dollar severely hampers Canada’s export markets.

While there still could be another small surge, ultimately the loonie will settle to a more manageable level for Canadian exporters at around 72 or 73 cents US, the economist said.

— from Canadian Press