CAD Drops After Growth Stalls

The Canadian economy stalled in July, after six consecutive monthly gains, as growth in manufacturing and the public sector was offset by declines in energy and utilities output — pointing to no change in interest rates any time soon.

The Canadian dollar fell 0.26 of a cent to a fresh, six-month low of 89.4 cents US and breaking through a key resistance level this morning. The loonie is down 2.7% this month, poised for the worst performance since January.

The Canadian economy seriously stubbed its toe in July

The flat reading in gross domestic product was the weakest performance since December 2013, when the economy fell by 0.4%, Statistics Canada said Tuesday. Economists had expected GDP to expand by 0.2% in July.

The economy grew by a modest 0.3% in June and by 0.5% in May. On a quarterly basis, the economy has posted gains of 0.9% in the first quarter of this year and 3.1% in the second three-month period. Many forecasters are looking for growth of 3% or slightly in the third quarter and 2% in the final quarter.

“The Canadian economy seriously stubbed its toe in July,” said Douglas Porter, chief economist at BMO Capital Markets.

The Bank of Canada has been looking for signs of sustained growth before signalling any change in its monetary policy.

Stephen Poloz, the central bank governor, has maintained of neutral stance on the direction of policymakers’ key lending rate, which has been unchanged at 1% since September 2010. However, economists generally expect the bank to begin raising rates around mid-2015, about the same time as the U.S. Federal Reserve begin tighten lending levels.

“Even with the July stumble, the underlying trend in growth is still running a bit above the Bank’s estimate of potential GDP growth — about 2% — eating into spare capacity and — eventually — setting the stage for higher rates,” Mr. Porter said.

via Edmonton Journal

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