The Canadian dollar tumbled by more than a penny from its open today after the Bank of Canada cut its key rate and painted a picture of a troubled, oil-shocked economy.

The loonie tumbled to below 77.5 cents U.S. in the wake of the rate cut, having opened at 78.57 cents.

“The perfect storm for the loonie has arrived - the Bank of Canada, weak oil, sluggish domestic growth, and an upcoming election,” Rahim Madhavji, president of Knightsbridge Foreign Exchange, said in a report titled “Bank of Canada cuts rate, guts loonie.”

“The Canadian dollar has reacted violently to the news - a rate cut means flows of funds out of Canada as yields are now lower in Canada,” he added.

“With expectations that the Fed will raise rates sometime in 2015, the U.S. dollar uptrend will continue.”

As The Globe and Mail’s Barrie McKenna reports, Bank of Canada Governor Stephen Poloz and his colleagues cut their benchmark overnight rate by one-quarter of a percentage point to just 0.5 per cent.

The central bank also cut its estimate of how the economy has fared amid the oil shock and softer-than-expected exports.

“The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities,” the central bank said in its statement.

“Real GDP is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation.”

The Bank of Canada did say it expects a pickup in the third quarter, and then again in the last three months of the year.

But for the year as a whole, the central bank now sees the economy expanding by just slightly above 1 per cent, though that should perk up to 2.5 per cent in 2016.

You can expect the loonie to sink further still, particularly when the Federal Reserve hikes rates later this year.

Like many other central banks around the world, the Bank of Canada has been on a much different path than that of the Fed, whose chair Janet Yellen signalled again today that she’s poised for a rate hike.

Mr. Poloz is still hoping for a rebound in non-energy exports, which are supposed to be helped along by the lower dollar.

“The clue is in the bank’s optimism for a shift in the drivers of growth towards exports, and the analysis it presents showing that exchange-rate sensitive sectors have already been outperforming,” Avery Shenfeld, chief economist at CIBC World Markets, said of the rate cut.

“Pushing Canadian short rates below where the Fed is likely to be at year-end is having the desired effect on the Canadian dollar,” he added.

“But there’s a long lag in getting the full benefit of the currency move in terms of waiting for a shift in plant location decisions in Canada’s favour, so monetary policy will have to be easy enough in coming years to allow the recent loonie trading range to become the norm.”

This is the second cut by the Bank of Canada this year after it surprised the markets in January.