Canadian Dollar Weakens on Shrinking Economy, Business Sentiment

The Canadian dollar is weakening on Tuesday after new data showed that the economy contracted in February, reducing some of its gains in January. Thanks to sluggish resource output, analysts are beginning to forecast an economic slump in the first quarter. This could explain why there is declining business sentiment nationwide.

According to Statistics Canada, the gross domestic product (GDP) slipped 0.1% in February, down from the 0.3% gain in January. The market had forecast that economic growth would come in at 0.3%. The statistics agency is blaming poor weather for the disappointing numbers.
But the latest data remains consistent with the overall economic picture, leaving economists with fears that the Canadian economy may either barely grow or even contract during the January-to-March period.
Here is what the sectors experienced: transportation and warehousing recorded a 1.6% drop, utilities advanced 1.5%, energy dipped 0.1%, manufacturing fell 0.4%, and mining cratered 4.4%.
Is this stagnancy going to continue for the rest of 2019? Speaking to the House of Commons finance committee, Bank of Canada (BOC) Governor Stephen Poloz thinks there will be an acceleration in the second half of this year. Despite facing a series of headwinds and the central bank refraining from raising interest rates, the BOC head believes there is ample evidence for significant growth in the third and fourth quarters.

The Canadian economy is currently facing some headwinds, but there is good reason to believe that the economy will accelerate in the second half of this year.

We will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive. In particular, we are monitoring developments in household spending, oil markets and global trade policy.

Businesses might wish they were as confident as Poloz.
According to a BOC survey, business confidence turned negative and tumbled to its lowest level since 2016. Central bank analysts say that a cooling economy, uncertainty in the energy sector, and global trade tensions are contributing to this bearish view.
The USD/CAD currency pair rose 0.51% to 1.3457, from an opening of 1.3391, at 18:05 GMT on Tuesday. The GBP/CAD surged 0.32% to 1.7459, from an opening of 1.7406.

If you have any questions, comments, or opinions regarding the Canadian Dollar, feel free to post them using the commentary form below.

Leave a Reply

Your email address will not be published. Required fields are marked *