Bank of Canada Crushes Loonie, Creates Mother of All Shorts

It got clobbered by the commodities rout, given their importance to the Canadian economy, the multi-year decline in the prices of metals, minerals, and natural gas, and then starting in mid-2014, the devastating plunge of the price of oil.

DYI Comments:  Until recently commodity prices were flying high since the low in 1998.

As I write oil prices are $35.13 per barrel as report by Yahoo Financial down even further from where the above chart ended.  Canada when oil/gas and all of the other commodities were flying high propelled their economy forward at a sizzling rate.  The economic downturn of 2008/2009 ended up being only a "bump in the night" for the average Canadian.  Add on world wide decline of interest rates Canadians were off to the races in forming a credit bubble.  The debt went predominately into real estate creating a massive mania.

  

  Fast forward to today Canada is in recession and many cities especially in the province of Alberta(oil patch) real estate prices are tumbling.  As the recession spreads from province to province real estate prices will go soft.  If oil prices become a teenager expect the Canadian central bank to drop rates into negative percentage and massive QE.  If oil stays down at that level for a year or more Canada will go into outright depression along with a real estate smash far greater than the U.S(40% to 70%).

The Harper administration in their short sightedness made a big bet on commodities and when they crashed so did his recent reelection bid.  Justin Trudeau is now Prime Minister.  Hopefully Trudeau will work at providing the ground work to diversify their economy such as Texas has done many years ago.  Pushing for a full spectrum from finance, banking, insurance, health care, high tech high end manufacturing, consumer services, tourist trade,and commodities etc.  A difficult task but with political will it can be done just ask any Texan who are now no longer at the whim of oil prices.

Best of luck Canada(you are going to need it!)

DYI