Loonie dips on investor fears over slumping oil prices
The Canadian dollar sagged in trading on Tuesday as slumping oil prices turned investors away from the loonie.
The loonie dropped 1.3 cents US to 96.02 cents US in mid-morning trading. Investors were dumping the loonie because of the perception that Canada's economy will be hurt if crude oil prices keep slipping worldwide.
The loonie's value is slipping compared to the U.S. dollar.(CBC)Oil is trading below $118 US a barrel, almost 20 per cent off of its all-time high of $147 US, reached less than four weeks earlier.
Gas watchers argued that consumers appear set to cut their driving and spend less overall because of rising energy prices. As a result, future demand for crude oil might drop.
While higher energy prices hit Canadians in a similar way to consumers elsewhere, Canadian industry benefits from soaring crude because this country is a major oil producer.
Thus, dipping crude prices make Canada's dollar less interesting to foreign buyers.
Another factor in the short-term loonie slide is the market's belief that, when the U.S. Federal Reserve Board meets on Tuesday, the central bank will recommend that U.S. interest rates remain put.
Investors had initially thought that the U.S. Fed might cut rates to boost the flagging American economy. That move would have made the Canadian dollar relatively attractive to currency buyers.
The new sentiment, that the U.S. central bank would leave rates alone for the time being, will add support to the American greenback compared to the Canadian dollar.
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