USD CAD: This Is Bad News for the Canadian Dollar

Canadian DollarThere’s more bad news for the Canadian dollar. The latest report suggests that Canada’s economy failed to grow in October. With resource prices in the doldrums, there is no sign of a bottom for the CAD/USD exchange rate.

Canada’s Real GDP Remained Flat in October

On Wednesday, December 23, Statistics Canada released gross domestic product (GDP) numbers for October 2015. According to the report, real GDP in Canada was unchanged in October after falling 0.5% in September. While there were gains in mining, quarrying, oil and gas extraction, and the public sector, they were offset by declining manufacturing, utilities, and retail trade. (Source: Statistics Canada, “Gross domestic product by industry, October 2015,” The Daily, December 23, 2015.)

The report was disappointing because economists were expecting a recovery of 0.3% to 0.4% in that particular period. Note that the Canadian economy contracted in the first half of this year—and sluggish results in October could signal another economic downturn.

CAD to USD: More Easing from Bank of Canada?

According to Nick Exarhos from CIBC, this could also mean more easing from Canada’s central bank: “All told, a weak set of results, which has us now looking at nearly no growth in Q4, increasing the odds of another Bank of Canada ease.” (Source: Isfeld, G., “Canada’s economy unexpectedly stalls, setting uncertain tone for end of the year,” Financial Post, December 23, 2015.)

This would not be good for the CAD to USD exchange rate, as the two nations’ central banks are pursuing quite the opposite in monetary policies. The U.S. Federal Reserve just raised its benchmark interest rate by 25 basis points, marking the first rate hike since the financial crisis.

Growth-wise, Canada is lagging behind the U.S. as well. “This soft GDP report pretty much sums up 2015: The economy quite simply struggled to grow at all this year, and any gains were of the most meagre variety and were well below expectations,” said BMO chief economist Douglas Porter.

The U.S. economy, on the other hand, has performed better than expected. On Tuesday, December 22, the U.S. Bureau of Economic Analysis released the third estimate for the country’s GDP in the third quarter of 2015. According to the report, real GDP in the U.S. increased at an annual rate of 2.0% in the period, beating the expected 1.9%. (Source: “National Income and Product Accounts, Gross Domestic Product: Third Quarter 2015, Corporate Profits: Third Quarter 2015,” Bureau of Economic Analysis web site, December 22, 2015.)

With the two economies heading in different directions and the two central banks adopting different policies, the outlook for the CAD/USD exchange rate is gloomy going into 2016.

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