The Canadian dollar is slipping against its currency rivals midweek as new data is beginning to highlight how much damage the coronavirus is impacting the Great White North. Manufacturing contracted, the economy already showed signs of slowing down before the COVID-19 crisis, and producer prices slumped â this could be the start of even more negative economic readings in the weeks to come.
The IHS Markit manufacturing purchasing managersâ index (PMI) fell from 51.8 in February to 46.1 in March. This is the steepest drop in factory activity since the measurement was established. The data revealed that output declined sharply amid reduced operating capacity and lower demand. Overall, new orders fell, export sales decreased, and employment plunged at the fastest pace on record.
What may cause some consternation among Canadian investors, the national economy rose just 0.1% in January, down from the 0.3% expansion in December. The reading suggests that Canada was already slowing down before the coronavirus pandemic began. The disappointing figure was led by air transportation (-2.7%), education (-0.7%), arts and entertainment (-0.5%), and retail (-0.4%). Goods-producing industries advanced 0.2%.
The producer price index (PPI) tumbled 0.5% in February, down from the 0.3% slide in January. The market had penciled in an increase of 0.1%. Year-over-year, the PPI has contracted 0.3%. Raw materials prices plummeted 4.7% in February, down from -2.2% in the previous month.
Experts say that one sector of the economy that will perform well this year will be public administration. Bank of Montreal economist Benjamin Reitzes told the CBC:
One sector that picked up steam with its biggest gain in a year is public administration. Expect a lot more of that as the federal and provincial governments step in to support the economy through the COVID-19 shock.
January numbers are ancient history now given how the economic landscape has drastically shifted. While the year got off to a decent enough start, the near-total halt in activity in the second half of March will have a hugely negative impact.
Energy prices continue to take a toll on the loonie. May West Texas Intermediate (WTI) crude oil futures shed $0.16, or 0.78%, to $20.32 per barrel. May natural gas futures slid $0.033, or 2.01%, to $1.607 per million British thermal units (btu). Energy remains Canadaâs biggest export, so a significant change in the state of energy will have a lasting effect on the national economy.
Last month, the Canadian dollar fell 4.6% against the greenback as the coronavirus pandemic and crashing oil prices decimated the loonie.
The USD/CAD currency pair rose 0.7% to 1.4164, from an opening of 1.4066, at 14:08 GMT on Wednesday. The EUR/CAD dipped 0.23% to 1.5485, from an opening of 1.5525.
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