Canadian dollar on track for 2nd-worst year ever

The word "beleaguered" often used to describe the Canadian dollar these days seems inadequate to describe the precipitous fall our currency has experienced this year.

Assuming thatthe loonie stays at current levels(and that may be a reckless assumption given the steady slide we've seen of late) our dollar is on track to record its second-worst year ever, according to calculations from BMO Capital Markets, with a drop of 17 per cent since the start of the year.

• Canadian dollar tumbles to close below 72 cents US
• U.S.Federal Reserve hikes interest rates for 1st time since 2006

That would be second only to 2008's drop of 18.6 per cent, when the financial crisis was gripping much of the industrialized world.

Economists at the National Bank of Canada put it this way in a currency outlook this month: "This year is one to forget for holders of the Canadian dollar."

To put this slide into perspective, of course, it's necessary to go back more than oneyear. Remember when the dollar was on par with itsAmerican counterpart? It wasn't that long ago. The two currencies were at par as recently as December2012.

Today, it costs at least $1.40 to buy agreenback that could be swapped one-for-one with our loonie three years ago.

Experts cite severalmain reasons for the slide since then:

1. Slumping oil prices. With oil plungingto around $35 US a barrel (itwas around $60 US at the start of the year and more than $100 US in the middle of last year), the hit to our currency has been huge. Canada is a largeexporter of oil, which is priced inU.S. dollars. Prices of gold, copper and coal, which Canada also exports in abundance, are also slumping.
2. DivergingCanadian and Americamonetary policies. The U.S. has just begun to raise its key interest ratewhile the Bank of Canada is unlikely to follow any time soon and may even lower its key rate. Rising rates in the U.S. draw more foreign investment to that country as investors chase higher returns on interest-bearing products.
3. Strength in the U.S. dollar. The prospect of higher U.S. interest rates and a U.S. economy that is recovering faster than many others havecombined to driveup the greenbackagainst a number of other currencies, not just the Canadian dollar. An index that tracks the U.S. buck against a basket of other currencies hit a 13-year high earlier this month.

Alow loonie makes it more expensive to take that U.S. vacation, but it also makes our products cheaperfor U.S. buyers. So far this year, aboom in exports has failed to materialize. Merchandise trade exports to the U.S. are actually down from a year ago. That, too, is helping to keep the Canadian dollar low. But market watchers say exports should eventually turn higher.

"I know [the low Canadian dollar]hurts our national pride and all that, but it is what we need in terms of getting our economy back on its feet,"Ian Nakamoto, director of research at Toronto-based3Macs, said recently.

And while some analysts see the loonie falling further in 2016, many say the bottom is in sight and is unlikely to test the all-time low of 61.79 cents US set in January 2002.

And for those who say they can'timagine a worse currency slide, consider the situation in Argentina. Earlier this week, the Argentine government removed limits on buying foreign currencies.

Overnight, the peso lost 30 per cent of its value against the U.S. dollar.