Despite a strong Canadian economy, the Canadian dollar continues to experience tough times, say BMO. The Canadian economy is the strongest in the G7 and it the only one with twin surpluses in the federal budget and the current account, says BMO. “Nevertheless, the dollar has fallen sharply in the past two weeks, as the stock slide have accelerated.”

“Recent weakness in the loonie might well reflect the weakness in some recent data – most notably, shipments and new order data, the trade surplus and retail sales all for the month of May.” But the weak May numbers follow on the heels of inordinate strength in April, and that weakness may be seasonal, says BMO.

“Responding to these temporary signs of weakness, following much stronger than expected Canadian data over the course of the past year, only shows how vulnerable the loonie is. It is a currency that has been in long-term decline for the better part of three decades.”

“Moreover, the plunge in stocks could well be triggering a downward revision in global economic prospects, which hurts the Canadian asset markets disproportionately,” says BMO.