Canada’s dollar fell against its U.S. counterpart after the nation’s gross domestic product unexpectedly shrank in February, weakening the argument for higher borrowing costs.
The currency extended losses after a report showed the economy was hurt by mining shutdowns and the first drop in manufacturing in six months. The Canadian dollar advanced against all of its major counterparts except the yen last week on speculation the Bank of Canada will become the first among Group of Seven peers to raise borrowing costs.
“The reaction is the right one, given how much we’d priced in, in terms of rate hikes,” said Adam Cole, global head of foreign-exchange strategy in London at Royal Bank of Canada’s RBC Capital Markets unit, in a telephone interview. “Even after the correction today, we’re probably still vulnerable to downside data surprises.”
Canada’s currency, nicknamed the loonie, declined 0.5 percent to 98.55 cents per U.S. dollar at 8:45 a.m. in Toronto. It touched 98 cents on April 27, the strongest since September. One Canadian dollar buys $1.0147.
Economic Output fell 0.2 percent to an annualized C$1.28 trillion ($1.30 trillion) after a January gain of 0.1 percent, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News had forecast a 0.2 percent increase, according to the median of 24 responses.
“The Canadian GDP figure was a little bit disappointing and is weighing on the Canadian dollar,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York.
The world’s 10th largest economy will be challenged by the “persistent strength” of the Canadian dollar and slow growth in the U.S. and Europe, central bank Governor Mark Carney said in April 27 remarks in Ottawa. Carney is relying on consumption and housing to contribute two-thirds of the country’s projected 2.4 percent economic growth this year.
The loonie has appreciated 1.3 percent this month versus the greenback in the fourth-best performance among its 16 most-traded peers, trailing the yen and Singapore dollar. The Canadian dollar is up 3.6 percent this year.