Dollar soars to 30-year high, TSX plummets
The Canadian dollar continues to experience record highs as retail sales were reported strong today. The loonie was pushed up 0.88 of a cent to 96.39 US cents today. The dollar has risen 10.8 percent this year, and is currently at its highest levels since May 1977.
The strong dollar, a blowout May retail sales report, and last but not least, weaker commodity prices caused the Toronto Stock Exchange to plummet. The S&P/TSX composite index dropped 400.17 points, or about 2.8%, to 14,068.16. This was the benchmark index’s steepest one-day fall since the burst of the tech bubble in 2001. Canada’s two largest railways also contributed to the downfall today. Canadian National Railway stock fell 5.5 percent after lowering its full-year outlook; Canadian Pacific Railway, the No. 2 railway, slip 3.6 percent after it reported its quarterly profit dropped more than 30 percent. The TSX index hit a record peak last week, but retreated 3.8 percent in the last three sessions.
Regardless, I would say growth prospects for Canada remain strong over the next few months. The Canadian dollar may or may not hit parity with the struggling US dollar by the end of the year. The loonie will probably weaken later this year with lower commodity prices. The economy is also at risk of reactions to the strong national currency. A lot is also dependent on how the shaky U.S. economy does. The Canadian economy is still on track to grow to an excess demand position - we can expect the Bank of Canada to raise interest rates again (maybe even upto 5 percent). Though the Canadian economy can face some challenges in the near future, it is still in a very strong long-term position. All long-term threats to the Canadian economy are external - the global economy.
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