Loonie Hits 11-Year Low As China Crashes, Oil Slides

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The Canadian dollar hit an 11-year low Monday as oil prices fell more than 6 per cent and global markets tanked in the wake of China’s stock rout.

As of mid-morning Monday, the loonie was trading at around 75.6 cents U.S., having bounced back from around 75.2 cents, the lowest level for the Canadian dollar since 2004.

“There’s certainly some panic out there,” Karl Schamotta, director of FX Strategy at Cambridge Global Payments, told the Wall Street Journal. “The reality is that we are looking at a global economy suffering widespread disinflationary conditions.”

The Canadian dollar typically follows the price of oil and other commodities. Bloomberg reported Monday that commodity prices are at a 16-year low.

Prices for Brent crude oil, the international benchmark, were down 6 per cent as of mid-morning Monday, at six-and-a-half-year lows, Reuters reported. A barrel of Brent crude was trading at $42.51 U.S.

North American oil prices have been doing just as badly, trading at around $39 U.S. a barrel Monday, having fallen below the $40 mark, to six-year lows, last week.

The collapse in commodity prices reflects concerns about the strength of China’s economy, the world’s largest buyer of raw materials. The Shanghai composite stock index fell 8.5 per cent Monday in what traders there are now calling “Black Monday.”

"Today's falls are not about oil market fundamentals. It's all about China," Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt, told the Reuters Global Oil Forum. "The fear is of a hard landing and that things get out of the control of the Chinese authorities."

China’s stock market soared last year and in the early months of this year, largely as a result of government policies designed to help ordinary Chinese citizens into the stock market and prop up stock prices.

But in a classic bubble pattern, the market turned downwards in the second quarter of the year, and has lost 38 per cent from its June peak.

Despite extraordinary measures by the Chinese government to prop up stock prices — including cash injections, a ban on IPOs and an order forbidding some insiders from selling for six months — Chinese stock prices have continued to fall.

The bad news in China darkens the prospects for an economic recovery in Canada, which likely fell into recession in the first half of this year on the back of falling oil prices.

With stock and commodity prices sliding, analysts are seeing a higher chance of another rate cut from the Bank of Canada this year. Some now also expect the U.S. Federal Reserve to delay an expected interest rate hike in September, which could help to keep global interest rates low.

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