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Canadian Dollar Slumps on Weak Manufacturing Sales, BoC Caution

November 20, 2019 at 16:35 by Andrew Moran

Canadian dollar bills in denominations of 100, 50, 20, and 10The Canadian dollar is weakening midweek as new manufacturing sales data and a cautious Bank of Canada (BoC) put pressure on the loonie. While the financial market is nearing all-time highs, the national economy is not experiencing the same level of success. Overall, the Canadian economy remains anemic, but the central bank did note that has the tools to accommodate and prevent further weakness.

According to Statistics Canada, manufacturing sales fell 0.2% in September to $57.4 billion. This is down from the 0.8% gain in August and falls short of the median estimate of 0.5%. Overall, sales fell in petroleum and coal, motor vehicle parts, food, aerospace, chemicals, and electrical equipment. They also fell in seven of the 10 provinces in Canada.

The latest numbers come as manufacturing sales slumped 1.3% to $172 billion in the third quarter.

On Wednesday, the statistics agency reported the October inflation rate which came in at 0.3%, up from the previous month’s 0.4% decline. The 12-month inflation rate stands at 1.9%.

Speaking at an event in Montreal on Tuesday, Senior Deputy Governor Carolyn Wilkins stated that the BoC is not anticipating a recession, but it is warning about a potential spillover from external economic factors that could impact Canada. At the same time, she believes that the nation’s resilience helps the country be “in a good position to deal with whatever comes our way.”

Wilkins estimated that the US-China trade spat has cost the Canadian economy about $1 trillion in lost output, even if the dispute does not worsen. That said, the central bank official said that the BoC has options available to fight any significant downturn, citing large-scale asset purchases and extraordinary forward guidance. With interest rates still at record lows, policy officials do have flexibility.

In the end, she believes the efforts to cool down the red-hot real estate market, limit further household debt, and strengthen the nation’s banking system have been worth it.

The USD/CAD currency pair rose 0.32% to 1.3311, from an opening of 1.3268, at 15:23 GMT on Wednesday. The EUR/CAD advanced 0.2% to 1.4729, from an opening of 1.4697.

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

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