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Canadian Dollar Rebounds as Trade Balance Improves

H.S. Borji
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Canadian Dollar Rebounds as Trade Balance Improves

The Canadian dollar strengthened against its US counterpart Thursday, buoyed by a narrower trade deficit and brighter global prospects.

The loonie, as the Canadian dollar is known, advanced 0.32 percent to reach 0.9404. The loonie climbed to a nearly six month high of 0.9411 earlier this week before declining in the Wednesday session.

Canada’s currency has advanced nearly 0.3 percent since June 30.

In economic data, Canada’s international trade deficit narrowed in May, Statistics Canada reported today in Ottawa. The trade deficit fell from $961 million $150 billion, as export growth outpaced growth in imports.

Canadian exports advanced 3.5 percent to $44.17 billion, while imports grew 1.6 percent to $44.32 billion.

Both exports and imports rose faster than forecast in May.

Exports to the US advanced 2.1 percent to $33.5 billion, as an improving US economy continued to support demand for Canadian products. Canada’s trade surplus with the US increased from $4 billion to $4.8 billion in May, official data showed.

The loonie is also supported by strong Chinese manufacturing data. Business activity in China’s manufacturing sector reached a six-month high in June, according to a PMI report from HSBC/Markit that was released on Wednesday. China’s manufacturing PMI advanced from 49.4 to 50.7.

In US data, nonfarm payrolls rose at the fastest rate in more than two years, driven by broad-based advances in services and manufacturing. Nonfarm payrolls increased 288,000 in June, following a revised gain of 224,000 the previous month.

In a separate report the Institute for Supply Management said the US service economy remained elevated in June, as new orders and overall business activity kept job creation elevated for the fourth consecutive month.

Statistics Canada will release Canadian employment data for June next week.

The loonie’s recent gains could be a cause for concern for the Bank of Canada, which is counting on stronger exports to spur economic recovery. With the US representing three-quarters of Canada’s export market, a weaker loonie could better facilitate the BOC’s trade goals.

The BOC “talked down” the Canadian dollar at its June policy meetings, downplaying the sharp rise in inflation. Canada’s inflation rate edged higher in May, reaching an annual rate of 2.3 percent.

However, economic growth in the world’s eleventh largest economy continues to be disappointing. Canada’s GDP expanded only 0.1 percent in April, following a similar increase the previous month that capped off a disappointing first quarter.

Canada’s GDP expanded 1.2 percent annually in the first quarter, disappointing forecasts.

The Bank of Canada is scheduled to release its second quarter business outlook survey next week. The release provides a short-term snapshot of Canada’s economic situation through the eyes of 100 business executives.

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