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Canadian Dollar Rises as Slower Growth Fails to Erode Rate Speculation
The Canadian dollar advanced versus its U.S. counterpart after reports showing economic growth slowed in both nations failed to deter speculation the Bank of Canada will extend interest-rate increases.
The loonie gained compared with all of the 16 most-traded currencies and headed for a monthly advance versus the greenback even with weaker gross domestic product data. Bank of Canada Governor Mark Carney raised the benchmark interest rate on July 20 by a quarter-percentage point for a second month and may raise interest rates again in September.
“The markets are pricing accordingly with a September rate hike,” Jack Spitz, managing director of foreign exchange at National Bank of Canada, said by phone from Toronto. “Unless there’s a material downturn in between now and the meeting, I think the market has it right.”
The Canadian currency gained 0.7 percent to C$1.0294 per U.S. dollar at 1:29 p.m. in Toronto, from C$1.0371 yesterday, after touching C$1.0264, which would be the strongest on a closing basis since June 21. The loonie gained 1 percent against the euro and 0.2 percent versus the pound. One Canadian dollar buys 97.15 U.S. cents.
Canada’s GDP expanded 0.1 percent in May after stalling the month before, with mining and oil leading increased goods production, while wholesale and real estate activity declined.
The nation’s economic output rose to a seasonally adjusted annual rate of C$1.23 trillion ($1.19 trillion) in May, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News predicted a 0.2 percent gain, based on the median of 22 estimates.
‘One the Sideline’
“This weakness isn’t going to be enough to move the bank on the sideline, so you’re probably going to see rates continue to move up in Canada in contrast to the Fed,” Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto, said by telephone.
Canada’s annual growth rate probably slowed to 3 percent in the second quarter from a decade-high pace of 6.1 percent from January to March, when low mortgage rates and temporary tax credits sparked spending, the Bank of Canada said July 22. The economy’s growth of 3.5 percent this year will still lead the U.S., the euro zone and Japan because of consumer and government spending, the bank said.
“With strong employment growth through the second quarter in Canada, that bodes well for further strength in June’s GDP,” Ferley said.
Canada’s job creation was almost five times more than economists expected in June, restoring most of the country’s job losses since 2008, Statistics Canada said July 9. Employment rose by 93,200 in June, following gains of 24,700 in May and April’s record 108,700.
Gain for Month
The loonie, whose name is derived from the aquatic bird on the one-dollar coin, is poised for a 3.3 percent gain against the greenback in July and has risen 2.2 percent this year, according to Bloomberg data.
Growth in the U.S. slowed to a 2.4 percent annual rate in the second quarter, less than forecast, reflecting a larger trade deficit and cooler consumer spending.
The increase in gross domestic product compared with a median forecast of 2.6 percent of economists surveyed by Bloomberg News and follows an upwardly revised 3.7 percent pace in the first quarter that showed a jump in inventories, according to figures from the Commerce Department in Washington. Business investment climbed at the fastest rate since 1997.
The S&P 500 fell 0.1 percent, leaving it down 0.2 percent for the week, after the expansion in U.S. gross domestic product trailed economists’ forecasts.
Bank of Canada
Carney, the Bank of Canada governor, said July 20 further action on interest rates will be “weighed carefully against domestic and global economic developments.”
On June 1, he became the first Group of Seven central banker since July 2008 to lift borrowing costs, increasing the benchmark rate to 0.5 percent. Carney raised the target rate for overnight loans between commercial banks to 0.75 percent on July 20.
The Bank of Canada overnight lending rate will increase 25 basis points to 1 percent in the third quarter, according to the median forecast of 6 economists surveyed by Bloomberg News.
To contact the reporter on this story: Alex Kowalski in New York at akowalski13@bloomberg.net;
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