Article content continued

“We are seeing over the last week or two a large short Canada trade come into effect,” said Scott Smith, chief market strategist at Viewpoint Investment Partners.

Depressed oil prices have prompted decisions by international energy companies to dump about US$22.5 billion of Canadian oil sands assets this year, while a proposed U.S. border adjustment tax could threaten Canada’s exporters.

Recent headwinds for Canada have also included U.S. duties on Canadian softwood lumber, a more uncertain outlook for the North American Free Trade Agreement and investor wariness about how the troubles of alternative lender Home Capital Group Inc could affect the country’s real estate market.

In a trade that has been called “The Great White Short,” investors are selling Canadian assets on expectations that the country’s economy will suffer if a housing bubble pops.

“Technically, the Canadian dollar is in a tough spot,” said Adam Button, a currency analyst at ForexLive. “I don’t even think you need oil to fall further to see dollar-CAD hit C$1.40 in the month ahead.”

A Reuters survey earlier this month showed strategists expect the loonie will recover over the coming months to trade around 74 US cents. But currencies often overshoot, while round numbers, such as C$1.40, or 71.42 US cents, tend to act as pivots, where price swings can occur.

A downgrade of Canada’s Big Six banks further weakened the Canadian dollar Thursday, adding to concern about depressed oil prices and a more uncertain trade outlook with the United States, though the loonie regained ground to 73.04 U.S. cents, by late morning.