Why an 80-cent loonie is good for shoppers though bad for oil producers

One of a few saving graces of a oil downturn has been that oil is labelled in U.S. dollars. Energy companies sell their products in U.S. currency, though compensate their losses in Canadian dollars. So as a loonie forsaken over a past 3 years, it tempered the heartless downturn.

Traditionally a value of a Canadian dollar moves with oil; as oil prices pierce higher, a loonie does as well. When oil was final trade above $100 US, a Canadian dollar was above 90 cents US.

That attribute has damaged down recently, following moves by the Bank of Canada to boost seductiveness rates. The pivotal overnight lending rate in Canada changed aloft progressing this month and is broadly approaching to arise again in October.

• Canadian dollar tops 80 cents US for 1st time in 2 years

• Oil prices take another dive — can a oilpatch take it?

As an example, a year ago, when a cost of oil was also hovering around $45 US, a Canadian dollar traded during 74 cents US. Today, with seductiveness rates in Canada rising, Canadian oil producers are traffic with $45 oil and a Canadian dollar impending 80 cents US.  

Higher seductiveness rates hurt the oilpatch

“This is terrible news for Canadian producers,” pronounced Martin Pelletier, arch investment officer with Trivest Wealth Counsel.

“As that attribute changed together in a past, with oil and a currency, a dump in a value of a Canadian dollar will alleviate a blow. And now we’re in a conditions where oil prices are low, if not falling, and a Canadian dollar rising — it’s a double whammy.”

Maybe even a triple whammy. Higher seductiveness rates also impact borrowing by oil companies, just as they impact the borrowing of homebuyers. 

• OPEC moves to top Nigerian oil output, boost prolongation cut compliance

• OPEC meets Monday amid nerves in a oil market

It is already wily to lift collateral in a appetite sector, given distrust about a destiny of oil prices. Rising seductiveness rates add another turn of problem to the process.

Traders turn against U.S. greenback

Among banking traders, view around a Canadian dollar has shifted in new weeks. Over a spring, there was a record brief position on a loonie, definition traders were betting that a banking was going to continue to fall. That view has shifted and some-more traders are betting on a Canadian dollar relocating up. At a same time, view is apropos disastrous on a U.S. dollar opposite all currencies.

As with a cost of oil, a turn of seductiveness rates and a value of a banking are out of a hands of Canadian oil producers, who are left to control losses as best they can.

• Branding Canadian oil immature would be good for attention and for meridian change: Don Pittis

“What we can do is ask, ‘Is this tolerable prolonged term, and what can we do to equivalent this?’ So we can during slightest try to be active from that standpoint,” Pelletier said.

There are some splendid spots, as oil prices changed adult somewhat today. Western Canada Select, an Alberta-specific oil blended in a oilsands, has seen a differential with a U.S. benchmark West Texas Intermediate shrink extremely in a past year, that gives some service to an oilpatch that is carrying difficulty throwing a break.

Article source: http://www.cbc.ca/news/business/80-cent-loonie-bad-news-for-oil-patch-1.4219156?cmp=rss