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Canadian Dollar Edges Higher as Housing Starts Beat Forecasts

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Canadian Dollar Edges Higher as Housing Starts Beat Forecasts

The Canadian dollar edged higher against its US counterpart Monday amid signs Canada’s housing sector remained elevated in May.

The Canadian dollar advanced 0.1 percent to 0.9161 US. The loonie was under pressure last week after the Bank of Canada repeated concerns about downside risks and weak exports at its June policy meetings. Although the BOC acknowledged the pickup in inflation in April, the central bank said core inflation remained well below its target threshold.

In economic data, Canadian housing starts rose at a seasonally adjusted annual rate of 198,324 in May, following an upwardly revised 196,687 units the prior month, the Canadian Mortgage and Housing Corporation reported today in Ottawa. This represents a gain of 0.8 percent. A median estimate of economists called for a decline to 185,000.

Starts rose sharply in Quebec, Atlantic Canada and British Columbia, held steady in Ontario and decreased in the Prairies.

Single-detached housing starts advanced 5.4 percent to a 63,104 pace. Multiple housing units – typically condos – declined 0.8 percent to 117,709.

“In May, the trend in housing starts was virtually unchanged for the third consecutive month. This is in line with CMHC’s analysis indicating that the new home construction market in Canada is headed for a soft landing in 2014,” said CMHC manager Bruno Duhamel. “Builders are expected to continue to manage their starts activity in order to ensure that demand from buyers seeking new units is first channeled toward unsold completed units or unsold units that are currently under construction, including condominium units.”

Housing starts have advanced sharply the last two months, likely a reflection of the post-winter rebound. Starts were down in the first three months of the year as severe weather gripped the Canadian economy.

The two-month average for April and May is 12.9 percent higher than the 175,000 pace recorded in the first three months of 2014, according to the Royal Bank of Canada.

The pickup in investment in April and May will probably boost overall GDP in the second quarter. However, housing starts are likely to cool in the coming months as the market fully recovers from the weather-related slowdown.

Severe weather weighed on Canadian output in the first quarter of 2014. Canada’s economy advanced just 1.2 percent annually between January and March, official data showed. Economists forecast an annualized gain of 1.8 percent. By contrast, the US economy contracted 1 percent in the first quarter of 2014.

Statistics Canada will report on new house prices later in the week. New house prices advanced 0.2 percent in March, StatsCan reported last month. Compared to the previous 12 months house prices were 1.6 percent higher.

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