Canadian dollar sinks to 70 cents US as oil drops to $31 a barrel

The Canadian dollar flirted with the 70-cent US level today as oil prices sold off for the sixth straight day, with a barrel of the North American benchmark now going for just over$31 US, thelowest level since 2002.

A barrel of West Texas Intermediate closed at $31.41on Monday, down $1.75.

A Morgan Stanley report was the catalyst for the sell-off, with the investment bank saying in a note that strength in the U.S. dollar could push oil prices down as low as $20 US a barrel.

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"Given the continued U.S. dollar appreciation, $20-$25 oil price scenarios are possible simply due to currency," Morgan Stanley said.

The investment bank said a fundamentally oversupplied oil market is not helping buoy prices, but oil is getting hammered especially hard because it is priced in U.S. dollars an asset class that people are flocking to in the current era of uncertainty.

"Oil in the $20s is possible, but not for the reasons often cited," Morgan Stanley said. "It's not about deteriorating fundamentals."

TSX, loonie drop

The Canadian dollarlost more thanthird of a cent and is now poised to go below 70 cents, with the loonieclosingat 70.31cents US.

The Toronto Stock Exchangewas also lower, down 126 points. Canada's benchmark stock index is in an official bear market, down 20 per cent from its September peak.

"We're seeing a continuation of the weakness that started the year," said Craig Fehr, Canadian market strategist at Edward Jones in St. Louis.

"The key drivers are pretty much the same. We're seeing further concerns about growth in China. That's leading to further declines in oil prices, and that obviously is having an impact on the domestic market as well as global markets as a whole."

Canadian oil fared even worse, with a barrel of the oil blend from Alberta's oilsands known as Western Canada Selectclosingat $16.61, down $2.05, itslowest level on record.

"Oil prices have shot through what would be a logical bottom," said Eric Lascelles, chief economist at RBC Global Asset Management. "We are at a level where almost no oil producer is viable, at $30 and below," he said.

"All the same, Ican't claim this is a bottom."

In the U.S., markets were mixed, with the Dow Jones up 52.12points at 16,398.57, while the S&P500 gained 1.64 points to1,923.67. Meanwhile, the Nasdaq slipped 5.64 points to 4,637.99.