Loonie briefly dips below parity as oil prices tumble

Last Updated: Tuesday, November 27, 2007 | 5:30 PM ET

CBC News

The Canadian dollar briefly fell below parity with the U.S. dollar on Tuesday, as oil prices shed more than $3 US a barrel.

The loonie dipped as low as 99.97 cents US in mid-afternoon trading, the Bank of Canada told CBCNews.ca.

That marked the first time since Oct. 4 that the Canadian dollar was worth less than its U.S. counterpart. But the loonie's journey below parity lasted only a few minutes. The dollar quickly regained ground to close the trading day at $1.0050 US, which was off 0.39 of a cent from Monday's close.

The Canadian dollar reached parity with the U.S. dollar on Sept. 20 — the first time it had been that high in almost 31 years. It continued to rise over the next few weeks, topping out at $1.1030 US on Nov. 7. In the three weeks since, however, it has been on a long slide.

Some analysts say it's simply a case of the value of the dollar falling after going up too quickly.

Allison Mendes, portfolio manager with MFC Global Investment Management, said the loonie needed to come down. "It was in overbought territory," she told CBC News.

Steve Butler, director of foreign exchange trading at Scotia Capital Markets, called it "a healthy correction."

BMO Capital Markets said the number of Canadian dollar "net longs" — the difference between the number of futures contracts that are betting the loonie will rise and the number betting on a fall — is it the lowest level in eight months. That "net long" number has fallen for six straight weeks as traders increasingly bet against a rise in the Canadian dollar.

Curbing the loonie's ascent has been the expectation that the Bank of Canada may cut interest rates to keep the economy going. The bank's next interest rate decision comes on Dec. 4.

Also weighing on the Canadian dollar Tuesday was a sharp drop in the price of crude oil. On the New York Mercantile Exchange, January light sweet crude was down $3.28 at $94.42 US a barrel.

The sharp drop came amid reports that members of OPEC are considering an output increase to help reduce the price of oil, which hovered near $100 US a barrel recently.

Concerns over an economic slowdown that could reduce demand were also cited by analysts as contributing to Tuesday's drop in prices.