Canadian Dollar: Headed for More Losses?
By Kathy Lien | July 28, 2008 | 12:41 PM | 0 Comments
In 2007, the Canadian Dollar was named Time Magazine's Canadian Newsmaker of the year. Having hit a high of 0.9059 against the US dollar, it smoked its US counterpart. At the time, the Loonie skyrocketed because of a booming economy and skyrocketing oil prices.
However in the second half of 2008, the tides are beginning to turn as the Canadian economy starts to feel the pain of slower US growth. Retail sales grew 0.4 percent in the month of May compared to 0.6 percent the previous month. However if you strip out the contribution from higher gasoline prices, consumer spending only increased by 0.1 percent.
Canadian consumer confidence dropped to the lowest level in 13 years as the labor market takes a turn for the worse with the unemployment rate rising to 6.2 percent, the highest since January 2007.
Cloak will be Lifted....
The Canadian economy is at the cusp of a more major turn with the recent drop in oil prices. For a long time the rise in oil prices have been masking an export recession in Canada. Now that oil prices are trading below $125 a barrel, the cloak will be lifted and the true vulnerability of the Canadian economy will be exposed. Lower oil prices and slowing growth will be bad news for the Canadian economy.
But Canada is Still Faring Better than Everyone Else
Weaker Canadian economic data should send USD/CAD higher because the US dollar has already become grossly oversold. However, Canada is still faring better than many of its G10 counterparts. Expect CAD/JPY, EUR/CAD, NZD/CAD, GBP/CAD to move lower in the coming months as we see greater deterioation in the Eurozone, UK and Canadian economies.
Expect the correlation between oil prices and the CADUSD to continue to hold:
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