Loonie Slides as Canadian GDP Slows in Fourth Quarter
THE TAKEAWAY: [Canadian GDP growth slows to 1.8 percent in fourth quarter, December growth stronger than forecast] > [Export, housing slowed; Monthly growth led by manufacturing and retail trade] > [Canadian dollar weakens]
The Canadian economy slowed to an annualized rate of 1.8 percent in the fourth quarter as exports, housing and inventory build-up slowed while consumer spending grew. The reading falls in line with the median forecast according to a Bloomberg News survey, but missed the Canadian central bank’s forecast of 2 percent growth. Third quarter expansion was revised upwards from 3.5 percent to 4.2 percent.
Monthly GDP in December was stronger than expected, rising by 0.4 percent to reverse the unexpected contraction by 0.1 percent in November. On a year-over-year basis, GDP grew by 1.8 percent. The consensus call was for a 0.3 percent rise in December, and a 12-month increase of 1.9 percent, according to economists surveyed by Bloomberg News.
According to a report by Statistics Canada, growth in December was led by the manufacturing, retail trade, and oil and gas extraction industries. Manufacturing increased by 1.5 percent on higher production of transportation equipment and equipment, while retail trade rose by 1.4 percent. Oil and gas extraction rose by 0.9 percent, primarily due to increased natural gas production as oil extraction was limited by maintenance activities during the quarter. In contrast, mining fell by 3.8 percent, mainly due to a decline in output at potash mines as a result of lower foreign demand for fertilizer, while utilities declined by 1.6 percent as unseasonable warm weather led to lower demand for electricity.
USDCAD 1-minute Chart: March 2, 2012
Chart created using Strategy Trader– Prepared by Tzu-Wen Chen
In the minutes after the data release, the loonie fell against the U.S. dollar on the news of the slowing Canadian economy. Interestingly, fourth quarter growth in Canada was much slower than in the U.S. where GDP grew by 2.8 percent. The Canadian dollar fell 14 pips before retracing back towards the levels seen before the data release. At the time of this report, the USDCAD pair was trading around 0.9870.
--- Written by Tzu-Wen Chen DailyFX Research
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.