Loonie Falls to 3-Week Low as Economy Shrank in Second Quarter

Updated on
  • Alberta wildfires lead to largest contraction since 2009
  • Weakness is mitigated as June growth exceeded forecast

The Canadian dollar fell to its weakest level in three weeks after a report showed the nation’s economy contracted by the most since the 2009 recession as wildfires in Alberta lowered oil production.

The currency weakened versus most of its peers as gross domestic product fell at a 1.6 percent annualized pace in the second quarter on contracting oil production, slightly weaker than the 1.5 percent decline economists were expecting. The loonie fell versus its U.S. counterpart even as the report showed June growth in Canada was stronger than forecast.

“In terms of the data, there’s a glass-half-empty, glass-half-full story depending on how you want to look at it," said Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia. Even with stronger-than-projected June data, he expects the economy to face headwinds in the coming months. “It’s a little bit of a struggle for Canada from a growth perspective and we expect the currency to continue to weaken.”

The Canadian dollar declined 0.2 percent to C$1.3130 per U.S. dollar at 11:25 a.m. in Toronto, reaching its weakest level since Aug. 9. The currency has dropped 1.6 percent this quarter, the worst performance among Group-of-10 peers. 

Hedge funds and other large speculators have been betting in the loonie’s favor since April, according to net-positioning data from the Commodity Futures Trading Commission.The loonie is projected to end the year little changed at C$1.31, according to forecasts compiled by Bloomberg.