A year ago, the Canadian economy was in great need of rebalancing, says portfolio manager David Wolf in a new report.
At the time, he finds, “Growth had for too long relied on debt-fueled consumption and housing investment at the expense of exports.” That meant the dollar needed to drop in value.
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And that’s now occurred, says Wolf, who works for Fidelity Investments. “The acceleration downward [of the loonie] in recent months has owed primarily to the crash in oil prices, which has shut off what had been the ultimate source of much of the strength in Canadian domestic demand.”
He adds, “We’ve actually gone through something like this [correction] twice before in Canada over the past half-century—in the early 1980s, following the last big commodity boom, and in the 1990s [after] the last big housing boom. The current episode combines both [scenarios], implying the ultimate [currency] adjustment this time around might need to be bigger.”
Read more on how much further the loonie may fall.
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