Reasons:
1. Strong US dollar, in part because of the relatively strong US economy
2. Weak oil prices (recall that Canada is a significant oil exporter)
3. Expectation that interest rates in Canada will not be rising soon - in part because theBank of Canada is perceived as trying to maintain expansionary monetary policy.
This is economics in action:
What happens if the US interest rates are expected to increase and Canadian rates do not? By the interest rate parity, the Canadian dollar depreciates.
The article also mentions forward contracts on the Canadian dollar. The US CFTC (Commodity Futures Trading Commission) reported that there is now a net short position in Canadian dollars. A short position means that speculators are counting on the Canadian dollar to fall. They sell the dollars they do not have (hence "short" position) for delivery at a specified date in the future. They hope that, when the contract is due, they will buy the dollars at a lower rate. The excess of short positions means speculators expect the Canadian dollar to fall.
Here is an interesting quote, somewhat difficult to understand because of the obscure language, by Camilla Sutton, chief currency strategist, Bank of Nova Scotia.
"The BoC’s tone remains conflicted, with near-target inflation limiting the ability to provide an accommodative tone and forcing a shift to focus on the potential for BoC-Fed policy divergence"
What it means: the Bank of Canada would like to maintain low interest rates but it is going to be difficult
- inflation is near the BofC target (2%), which so the Bank of Canada cannot explain low interest rates by referring to inflation being too low;
- "accomodative tone" refers to Bank of Canada statements that low interest rates are needed
- focus on potential of BofC-Fed policy divergence - the US is switching to a more restrictive (less accommodating) monetary policy with the end of the latest round of quantitative easing. This pushes the Bank of Canada to also be less accommodating.
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