Economists are warning that the Canadian dollar is falling too far and too fast, damaging public and business confidence in Canada.
National Bank Financial Markets warned in a new report Monday that the loonie is now out of line with fundamentals and the Bank of Canada cannot risk driving it even lower with a rate cut.
One official with National calculated that the loonie should have shed about 10 cents against the U.S. dollar in the past few months. But it has fallen by 25 cents.
The rapid drop has been exacerbated by crumbling oil prices and monetary divergence, as a strong American labour market and solid economic growth led the U.S. Federal Reserve to increase interest rates in December. The Bank of Canada, meanwhile, lowered its rate from one per cent at the beginning of 2015 to 0.5% by the end of the year.
As a result, the loonie has slid faster against the greenback than at any other point in the history of the two currencies.
National warned that in order to help create some stability for the loonie, the Bank of Canada should not cut interest rates at its Wednesday meeting, as doing so would risk sending the currency as low as 66 cents U.S. this week.
