Canadian Dollar Rises to Three-Month High on Surprise GDP Growth

  • Currency weakness cut imports in final three months of 2015
  • Forecasts for federal fiscal stimulus will help economy

The Canadian dollar touched its strongest point in three months after the country posted unexpected economic growth at the end of last year as a weak currency prompted consumers to spend more at home.

The currency rose against most of its major peers as crude oil, until last year’s price collapse Canada’s biggest export, rose for the second day. The Canadian dollar has rebounded from a 13-year low reached in January as traders anticipate an economic boost from promised federal government stimulus to take pressure off the central bank to cut interest rates.

"The worst is over," said Shaun Osborne, chief foreign-exchange strategist in Toronto at Bank of Nova Scotia. "If we get fiscal stimulus in the budget that is meaningful and adds to growth momentum fairly significantly and fairly quickly, that decreases the risk of Bank of Canada rate cuts this year, and probably means the next move in rates in Canada probably will be higher, though not until 2017."

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose as much as 0.5 percent to C$1.3470 per U.S. dollar after the data. It pared those gains to trade at 74.13 U.S. cents at 9 a.m. in Toronto.

Gross domestic product rose at a 0.8 percent annualized pace between October and December, Statistics Canada said. Economists projected output would be flat, according to the median of a Bloomberg survey with 21 responses. 

The most significant contribution to the fourth-quarter expansion was a 8.9 percent drop in imports, the largest such decline since the first quarter of 2009, as Canadians spent less money on foreign travel and electronics in the fourth quarter.

The Bank of Canada’s next policy decision is scheduled for March 9.

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