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Canadian Economy Grows for Fifth Time in Six Months

Canadian Economy Grows for Fifth Time in Six Months

2011-05-30 13:15:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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The Canadian economy grew for the fifth times in six months, data released today by Statistics Canada showed. The aggregate growth figure expanded at a 3.9 percent annualized rate in the first quarter, following a 3.1 percent expansion in the fourth quarter of 2010. According to a Bloomberg News survey, the median forecast called for 4.0 percent growth in the first quarter of 2011. The economy grew by 0.3 percent in March, up from a 0.1 percent contraction in February, on a month-over-month basis. Overall, GDP was up 2.8 percent on a year-over-year basis, slightly worse than the 3.0 percent figure from February.

While the data comes in softer than anticipated, it still remains stronger than growth figures released by Canada’s largest trading partner, the United States, which grew by a meager 1.8 percent in the first quarter. The differential in growth rates and growth prospects has helped the Loonie against its American counterpart, as the USD/CAD pair fell by 2.82 percent in the first quarter of 2011.

Canadian GDP (YoY): May 2007 to Present

053011_Canadian_GDP_Up_3.9_Percent_body_Picture_7.png, Canadian Economy Grows for Fifth Time in Six Months

Courtesy: Bloomberg

The stronger Loonie could have adverse effects on the overall growth figure in the following quarters, however, as evidenced by the current account figure from the first quarter that was also released today. While the current account balance improved significantly from its last reading, improving to -$8.9 billion from -$10.3 billion, the figure missed the forecast of -$7.2 billion due to the strong domestic currency, which suppressed net exports.

Should growth cool after the strong first quarter reading, pressure will likely be alleviated on the Bank of Canada to raise rates, which have been maintained at 1.00 percent since September 2010. Indeed, the central bank’s forecast shows an expectation of growth to drop to 2.0 percent this quarter.

Following the release of the news, the Loonie lost ground against its American counterpart, with the USD/CAD pair’s exchange rate rising from as low as 0.9754 to as high as 0.9782 in the minutes after the report was released. The impact was muted due to the fact of the closure of the U.K. and U.S. equity markets for national holidays. Similarly, the Dollar Index gained from 9561.06 to as high as 9567.03 following the data release.

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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