Canadian Dollar Loses Steam on Weaker U.S. Outlook

After recently touching a 90-day high against its U.S. counterpart, the Canadian dollar’s advance appears to have stalled. The pause coincided with news that for the first time since last May, Canada’s economy shrank as Statistics Canada reported that the economy contracted by 0.1 percent for the month of November.

While manufacturing and several other sectors managed a gain for the month, a drop in oil and gas production more than offset the gains. November’s decline in GDP comes on the heels of a very weak gain in October making it all the more likely that the final quarter of the year will fall well below Statistics Canada projections.

Nevertheless, Statistics Canada, even after factoring in the slowing fourth quarter, still expects GDP to have expanded by 2 percent for the year.

The loonie, as the Canadian dollar is nicknamed, had earlier benefited from signs that Greece and its creditors were close to working out a deal to swap maturing debt with new debt offered at a significant discount to the bond holders. However, with confidence fading that a deal was as close as originally thought, optimism quickly waned.

After breaking through to parity last week, the loonie lost ground on Tuesday falling to C$1.0034 per U.S. dollar Tuesday afternoon. The retracement can also be linked to the latest U.S. consumer confidence update which shows a significant decline in January. The consumer confidence index fell from 65 in December to just 61 in January – a value of 90 is regarded as a healthy consumer confidence rating.

Should the weaker sentiment translate into lower U.S. consumer spending, the impact will have an immediate and negative impact on Canadian exporters who count on U.S. consumers buying 75 percent of all Canadian exports.

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