The Canadian dollar is strengthening on Tuesday after the economy’s April contraction was better than what the market had initially forecast. The loonie is also finding support in housing data, as well as investors exiting its American counterpart. The Canadian dollar will finish the month higher against the greenback.
According to Statistics Canada, the gross domestic product (GDP) fell 11.6% in April, down from a 7.5% contraction in March. This is the sharpest economic contraction on record, but the key aspect of the report was that economists predicted a 13% decline.
The statistics agency reported that all 20 industrial sectors of the national economy contracted due to the COVID-19 lockdown measures. The leaders were accommodation and food services (-42.4%), transportation and warehousing (-23.1%), retail (-22.9%), construction (-22.9%), and manufacturing (-22.5%).
Researchers anticipate a 3% expansion in real GDP in May due to economies reopening and easing coronavirus restrictions.
On Monday, it reported a 20.2% spike in the value of building permits last month to $7.4 billion. This is up from the 15.4% collapse in April. The industrial product price index (PPI) advanced 1.2% last month, up from the 2.3% slide in April. Raw materials prices surged 16.4% in May, up from the 13.4% decline in the previous month.
The loonie could not find support in energy prices as they traded relatively flat. August West Texas Intermediate (WTI) crude oil futures slipped $0.14, or 0.35%, to $39.56 per barrel. September Brent crude futures shed $0.25, or 0.6%, to $41.60 a barrel. August natural gas futures picked up $0.022, or 1.29%, to $1.731 per million British thermal units (btu).
Energy commodities continue to be Canada’s biggest exports, so any significant change in prices – high or low – can affect the loonie.
The three-year government bond dipped to 0.301%, while the benchmark 10-year bond rose to 0.516%.
As investors exited the greenback due to rising stock indexes, the US dollar took a hit, which benefited the loonie. Since the US dollar is one of the top safe-haven assets, traders were a bit more confident in global financial markets, resulting in weakness in the buck.
The USD/CAD currency pair fell 0.44% to 1.3602, from an opening of 1.3659, at 15:25 GMT on Tuesday. The EUR/CAD tumbled 0.34% to 1.5304, from an opening of 1.5355.
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