The Canadian Dollar, Oil, and the TSX
-By Mason Lankes | [email protected]
The Toronto Stock Exchange hit a fresh 52 week low today as global markets sold off. The last time the TSX was at these levels was in 2013. Even in the last 10 years, the TSX doesn't have much to show for with a measly 4.87% gain.
Much of Canada's recent underperformance has to do with the price of oil which the country is heavily reliant on as a main export. However, when oil prices drop, the Canadian dollar gets hit, which is actually good for exported who translate their profits back into CADs when they report earnings. Thus a $30USD barrel of oil is really much closer to $43CAD. Still a small sum, but better than the US counterparts.
Canadian good will be more competitive globally due to the weak exchange rate. It is much easier for foreigners to buy up Canadian products at cheap prices. Thus Canada could rebound. The US, on the other hand which has a much stronger and more resilient economy than Canada, with a vast array of different sectors, is now suffering in the global market with its extremely strong currency. US goods may be much less competitive in the marketplace, which could be unsustainable.
While the trend may continue and get worse for the Canadian dollar and the price of oil, at some point other stress factors may kick in and cause a bounce in the Great White North and a drop in the strong US dollar.