Canada plunges to unexpected trade deficit
The divergent fates of the Canadian and U.S. economies sent Canada’s slipping currency to a six-month low against its U.S. counterpart, as Canada’s burgeoning export recovery took an unexpected step backward while a bullish U.S. employment report lifted the market’s U.S. dollar infatuation to new heights.
The Canadian dollar suffered one of its biggest one-day losses of the year, down eight-tenths of a cent to 88.80 cents (U.S.) on Friday, after Statistics Canada reported a surprise trade deficit of $610-million in August, a far cry from the $1.6-billion surplus economists had expected. Exports fell 2.5 per cent from July, a disappointing retreat after three straight months of solid gains that fuelled confidence in a long-overdue export turnaround and spurred hopes for accelerating economic growth.
The loonie selling was amplified by a flood of buying in the U.S. dollar, after a U.S. labour report showed that unemployment dropped to a post-recession low of 5.9 per cent in September. The greenback surged to a four-year high against a basket of major world currencies, adding to a bull run that has now added 9 per cent to the world’s dominant currency over the past three months.
“There’s no sugar-coating the fact that the August trade report was sorely negative and, combined with the strong U.S. payrolls report, will do no favours for the Canadian dollar,” said Bank of Montreal senior economist Robert Kavcic in a research note.
Canada’s weak August trade number provides further cause for economists to trim their third-quarter economic growth estimates, on the heels of news this week that gross domestic product growth stalled in July. The prospect of slower growth supports the delayed timetable for interest-rate increases that the Bank of Canada has indicated it favours. That’s bearish for the Canadian currency, because higher rates are a major attraction for currency investors.
But the big story in the forex market is an increasingly convincing U.S. recovery that has raised the prospect of the U.S. Federal Reserve raising its interest rates sooner than expected – and much sooner that central banks in other advanced economies, including Canada’s, where recovery remains spotty and elusive. This has fed a buying frenzy in the greenback in recent months, at the expense of currencies.
“If economies were sports teams, there would be a roaring crowd in the U.S. cheering section. [Friday’s] payrolls data were merely the latest evidence that America’s team is marching down the field, while other global teams are nursing their wounds,” said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, in a report.
Canada plunges to unexpected trade deficit - The Globe and Mail
The divergent fates of the Canadian and U.S. economies sent Canada’s slipping currency to a six-month low against its U.S. counterpart, as Canada’s burgeoning export recovery took an unexpected step backward while a bullish U.S. employment report lifted the market’s U.S. dollar infatuation to new heights.
The Canadian dollar suffered one of its biggest one-day losses of the year, down eight-tenths of a cent to 88.80 cents (U.S.) on Friday, after Statistics Canada reported a surprise trade deficit of $610-million in August, a far cry from the $1.6-billion surplus economists had expected. Exports fell 2.5 per cent from July, a disappointing retreat after three straight months of solid gains that fuelled confidence in a long-overdue export turnaround and spurred hopes for accelerating economic growth.
The loonie selling was amplified by a flood of buying in the U.S. dollar, after a U.S. labour report showed that unemployment dropped to a post-recession low of 5.9 per cent in September. The greenback surged to a four-year high against a basket of major world currencies, adding to a bull run that has now added 9 per cent to the world’s dominant currency over the past three months.
“There’s no sugar-coating the fact that the August trade report was sorely negative and, combined with the strong U.S. payrolls report, will do no favours for the Canadian dollar,” said Bank of Montreal senior economist Robert Kavcic in a research note.
Canada’s weak August trade number provides further cause for economists to trim their third-quarter economic growth estimates, on the heels of news this week that gross domestic product growth stalled in July. The prospect of slower growth supports the delayed timetable for interest-rate increases that the Bank of Canada has indicated it favours. That’s bearish for the Canadian currency, because higher rates are a major attraction for currency investors.
But the big story in the forex market is an increasingly convincing U.S. recovery that has raised the prospect of the U.S. Federal Reserve raising its interest rates sooner than expected – and much sooner that central banks in other advanced economies, including Canada’s, where recovery remains spotty and elusive. This has fed a buying frenzy in the greenback in recent months, at the expense of currencies.
“If economies were sports teams, there would be a roaring crowd in the U.S. cheering section. [Friday’s] payrolls data were merely the latest evidence that America’s team is marching down the field, while other global teams are nursing their wounds,” said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, in a report.
Canada plunges to unexpected trade deficit - The Globe and Mail
