Loonie Slumps as Record Trade Gap Undercuts Canada Recovery Betsby
Currency suffers steepest two-day decline since January 2015
Trade deficit unexpectedly widened to record in March
Harsh economic reality has caught up with the Canadian dollar’s surge. The loonie is suffering its steepest two-day slide in 15 months as the country’s trade deficit widened to a record in March, fueling concern over the economy’s rebound.
The currency fell 1.1 percent to C$1.2862 per U.S. dollar as of 12:24 p.m. in Toronto, following a slump of 1.5 percent Tuesday. The declines pared the currency’s gain this year to 7.6 percent, dropping it to the third-best-performer among Group-of-10 peers, after the yen and the Norwegian krone.
“The Canadian dollar isn’t helped by awful trade figures,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London, who expects the loonie to weaken to C$1.33 by the end of 2016. “It’s starting to call into question the rebalancing story that many have bought into recently.”
The reversal in the Canadian dollar comes after a rebound in oil and signs of a recovery in the nation’s economy sent the currency as much as 16 percent higher after it reached a 13-year low in January. Further pressuring the loonie, the greenback has gained against major peers the past two days as expectations of U.S. interest-rate increases began to seep back into the market.
Canada’s merchandise trade deficit unexpectedly widened to a record C$3.41 billion ($2.68 billion) in March, Statistics Canada said Wednesday. The surplus with the U.S., which consumes about three-quarters of Canada’s exports, shrank to C$1.53 billion, the narrowest since 1993.
The figures all but erased growing bets for Canadian monetary tightening this year, with overnight index swaps showing almost a 20 percent probability of an interest-rate cut. That’s a turnaround from last week, when the swaps showed a higher probability of rate increases.
One loonie, as the Canadian dollar is known for the aquatic bird on the C$1 coin, buys about 77.70 U.S. cents. Crude oil futures gained in New York, trading at $43.80 a barrel.