Canadian Dollar Falls on Bad Consumer Data, Capped by Crude Oil

The Canadian dollar is retreating from a two-month high midweek as disappointing consumer data weighed on the currency. The losses were capped by a modest rally in crude oil prices. While the market is anticipating a lower loonie in the near-term, the experts say this could rescue the Canadian economy.

According to the National Bank of Canada, consumer spending is expected to fall to its lowest level in a decade this year. Researchers say that real consumption growth will reach 1.3% this year, the lowest it has been since 2009, and retail spending in the fourth quarter is already poised for its worst quarterly performance in 10 years.
This forecast is supported by recent data that found retail sales declined 0.9% to $50.4 billion in November.
The bearish news stems from a mixture of a softening housing market, rising interest rates, and slumping household savings rates.

Part of the loss of momentum can be attributed to a softening housing market, which is not only restraining resales and home prices, but also hurting consumption spending via fading housing wealth effects.

Note that personal bankruptcies shot up last quarter in all of the country’s four largest provinces. Considering elevated household debt and a low savings rate, it’s difficult to imagine a scenario other than smaller and smaller contributions to GDP [gross domestic product] growth from consumption spending going forward.

On Wednesday, higher crude oil prices helped offset the weak economic data. March West Texas Intermediate (WTI) crude futures tacked on $0.35, or 0.65%, to $54.01 per barrel on the New York Mercantile Exchange. Crude, which is one of Canada’s biggest exports, has surged 17% year-to-date.
The Bank of Canada (BOC) has sounded the alarm about the impact of low oil prices on the national economy. However, BOC Deputy Governor Tim Lane said that the currency’s underperformance could actually lift the economy, even if only temporary.

This combination of factors has been putting downward pressure on the Canadian dollar. The lower Canadian dollar, in turn, will help support the economy through this period.

The loonie has come under pressure in recent trading sessions on trends that suggest there is growing demand for the US dollar.
The USD/CAD currency pair climbed 0.53% to 1.3197, from an opening of 1.3133, at 17:38 GMT on Wednesday. The EUR/CAD rose 0.2% to a key resistance level of 1.5000, from an opening of 1.4976.

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