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Canadian Dollar Declines as April GDP Disappoints

H.S. Borji
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Canadian Dollar Declines as April GDP Disappoints

The Canadian dollar was on its heels Monday amid signs Canada’s economy expanded very modestly in April.

The Canadian dollar declined 0.17 percent to 0.9361, rebounding from an intraday low of 0.9350.

The USDCAD pair was up 19 pips to 1.0682 after three consecutive days of decline. The pair faces initial support at 1.0649 and resistance at 1.0689.

Canada’s gross domestic product increased 0.1 percent in April, following a similar increase the prior month, Statistics Canada reported today in Ottawa. A broad consensus of economists forecast a monthly gain of 0.2 percent.

Compared to April 2013, the Canadian economy expanded 2.1 percent.

The small gain was led by the service economy, which increased output by 0.3 percent in April. Gains were led by the wholesale and retail trade sub-sector, as well as by accommodation and food services and professional services.

Goods-producers saw their output decline 0.3 percent in April, as all major sub-sectors except manufacturing posted losses.

The figures disappointed the markets, which were expecting to see a bigger rebound after a disappointing first quarter. The Canadian economy expanded just 1.2 percent annually in the first quarter, as inclement weather weighed on consumer consumption, business spending and government spending.

In real terms, Canada’s GDP increased only 0.3 percent in the first three months of 2014, following a gain of 0.7 percent in the fourth quarter of last year.

Canada’s currency ended last week on a high note, extending its gains on the heels of disappointing US economic data and a pickup in Canadian inflation.

Consumer prices in Canada increased 2.3 percent annually in May, the largest increase in more than two years. So-called core inflation, which excludes volatile elements such as food and energy, advanced 1.7 percent, official data showed.

Despite the loonie’s recent gains, speculators are still betting against the currency. The Canadian dollar has advanced 3.4 percent against a basket of ten developed nation currencies in the last three months, according to the Bloomberg Correlation Weighted Indexes. This makes the currency the most overvalued it has been since May 2006.

The eventual rise in US interest rates is expected to weigh on the Canadian dollar. Speculators say the currency could continue to rise over the short-term before plummeting below 90 US cents by the end of the year.

The Federal Reserve isn’t expecting to raise interest rates until mid-2015. However, the central bank is expected to wind down record bond buying this fall, a move that will raise bets on an eventual rate hike.

The Bank of Canada, which favours a weaker currency, is not expected to raise rates before the Federal Reserve.

Canada’s benchmark lending rate has been left at 1 percent since September 2010.

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