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Canadian GDP Expands Faster than Forecast, but Loonie still under Pressure

H.S. Borji
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Canadian GDP Expands Faster than Forecast, but Loonie still under Pressure

Canada’s gross domestic product grew faster than forecast in May on the strength of broad-based advances in most industries, but the Canadian dollar continued to slide as the US dollar asserted its dominance.

The loonie, as Canada’s currency is known, declined for a third consecutive day against its US counterpart, hitting a session low of 0.9150 US. The loonie would later consolidate at 0.9163 US, declining 0.09 percent.

The loonie, having declined 1 percent since Monday, has been under pressure all week as the US dollar continues to assert its dominance. The US dollar index, a weighted average of the greenback’s performance against a basket of currencies, has been steadily increasing since mid-July on speculation the Federal Reserve could raise interest rates earlier than previously estimated.

In economic data, Canada’s real gross domestic product rose 0.4 percent in May, as all major industrial sub-sectors reported growth, Statistics Canada reported today in Ottawa. May marked the fifth consecutive month of positive GDP growth.

Economists forecast a gain of 0.3 percent after the economy posted a modest 0.1 percent advance in April.

Compared to May 2013, the economy grew 2.3 percent.

The service economy expanded 0.4 percent, led by notable gains in wholesale and retail trade, real estate, transportation and warehousing, and professional services.

The goods-producing industries advanced 0.5 percent following a 0.4 percent decline the previous month. The gains were led by the manufacturing and mining industries, official data showed.

The finance and insurance sector fell 0.1 percent as banking services declined. Utilities posted a 0.9 percent decline as demand for electricity and natural gas decreased.

Canada’s economy advanced only 0.3 percent in the first quarter, as severe weather disrupted household consumption, business spending and government spending. That was the smallest increase since the fourth quarter of 2012.

In response, the Bank of Canada downgraded its 2014 growth forecast from 2.3 percent to 2.2 percent. Bank of Canada Governor Stephen Poloz ruled out the economy returning to full capacity before mid-2016.

The BOC, which has left interest rates intact at 1 percent since September 2010, isn’t expected to change the cost of borrowing until mid-to-late 2015.

In US data, weekly jobless claims rose from 279,000 to 302,000 in the week ended July 26, the Labor Department reported today.

Continuing jobless claims increased from 2.508 million to 2.539 million, official data showed.

On Friday the Labor Department will release July nonfarm payrolls, which are expected to show another strong month of job gains. The US economy has added more than 200,000 nonfarm payrolls for five consecutive months through June.

In other trading, the Canadian dollar was little changed against the euro, as the EURCAD traded at 1.4606. The pair faces initial support at 1.4567 and resistance at 1.4629.

The loonie tread water against the Japanese yen, as the CADJPY advanced 0.03 percent to 94.30. Initial support is located at 94.02 and resistance at 94.51.

The loonie advanced against the British pound, as the GBPCAD tumbled 0.13 percent to 1.8413. The pair faces initial support at 1.8396 and resistance at 1.8470.

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