The biggest or virtually only reason for the Canadian 69 cent dollar is said to be lower oil prices.
But other factors affect it to.
Every Canadian person, company or government that wants to spend money in U.S. dollars such as for imports, vacations or investments in the U.S. must exchange Canadian dollars for U.S. dollars. The Canadian dollars do not disappear in that process but merely change hands. But an increase in demand for U.S. dollars versus people exchanging money from U.S. to Canadian pushes down the market price of the exchange.
With far lower oil prices America customers pay far fewer U.S. dollars for Canadian oil. And those smaller revenues received are exchanged into Canadian dollars to pay workers, suppliers and taxes in Canada. That lower volume of dollars being exchanged definitely puts downward pressure on the Canadian dollar.
But it is worth looking at what is happening with other import and export flows.
Statistics Canda reported today that:
Canadian investors acquired a record $16.5 billion of foreign securities in November, mainly US securities. Meanwhile, foreign investment in Canadian securities slowed to $2.6 billion, largely on lower acquisitions of Canadian bonds.
As a result, Canada’s international transactions in securities generated a net outflow of funds of $13.9 billion from the Canadian economy in November, following two months of significant net inflows.
So that is a huge imbalance right there. But this is not really normal. Most months, foreign investment in Canadian securities averages about double the amount Canadians invest outside of Canada. In the first 11 months of 2015, the flow was a net $54 billion into Canada and in the same period in 2014 it was a net $48 billion invested in Canadian securities. So most months the flow of foreign investments provides a net demand for Canadian dollars which should push up the price of Canadian dollars. But in November 2015 the flow was a large negative one helping to push down the value of the Canadian dollar.
In November, Canadian investors showed a large appetite for foreign securities and foreign investors lost their taste for buying Canadian securities, especially bonds.
As for oil and other exports; In Q3 total exports were flat year over year at $637 billion despite a $37 billion decline in energy exports. Consumer goods were up by $15 billion (25%!), so yes the lower dollar is having some positive impacts. Overall with flat exports that would not seem to account for ANY downward pressure on the loonie.
Imports in Q3 meanwhile were up $32 billion or 5% which would have put downward pressure on the loonie. A little more than ALL of that increase was due to price increases. Volumes of imports in “2007 chained dollars” were down slightly. That would seem to suggest that the loonie was pushed down in part because imports were more expensive which was in turn because the loonie was down.
Another reason for the lower loonie could have to do with bets in the futures markets. It may be that financial traders not connected to imports and exports could be causing the loonie to drop. But I suspect that such financial trades would be temporary. Over time the loonie will respond to the real cross border flows of goods and service and to cross border investments.
As the loonie falls, Canada should find its export volumes rising (although they may at first fall in dollar terms) and import volumes falling (but at first rising in dollar terms).
Cross border investment flows may also respond in a similar manner.
The reaction of imports, exports and investment flows should eventually stop the loonie from falling or cause it to rise.
There are other factors that affect the loonie and that affect imports and exports and investment flows, including interest rates and also the competitive of Canadian firms for reasons unrelated to the dollar, principally wages, productivity and taxes of all kinds.