Canadian Dollar Slides on Higher Producer Prices, Crashing Oil Prices

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The Canadian dollar is sliding against several major currency rivals on Tuesday, driven primarily by cratering crude oil prices. Higher producer prices, as well as a resurgence in new coronavirus infections, also weighed on the loonie. After stabilizing in the aftermath of the market meltdown, the loonie has struggled in September, losing about 2.6% against the greenback.

According to Statistics Canada, the industrial producer price index (PPI) rose 0.3% in August, the fourth consecutive monthly gain. The jump was led by metals (6.3%), chemicals (1%), lumber (2.3%), and petrochemicals (6.1%). Year-over-year, the PPI is down 2.3%, mainly because of lower energy prices.

In August, raw material prices rose 3.2%, but they are still down at an annualized rate of 7.6%.

All eyes will be on the gross domestic product (GDP) in July. Economists forecast that the GDP advanced 3%, which would be a steep drop from the 6.5% expansion in June.

Cratering energy prices are adding to the loonie’s woes. December West Texas Intermediate (WTI) crude oil futures plummeted $2.15, or 5.3%, to $38.46 per barrel. December natural gas futures also crashed $0.245, or 8.77%, to $2.55 per million British thermal units (btu).

Canada maintains a current account deficit, so its exports are crucial to the growth of the national economy. Since oil and gas remain the country’s top exports, any significant change in price – high or low – can affect the Canadian economy and the loonie.

The Canadian bond market was deep in the red on Thursday. The benchmark 10-year bond yield slipped 1.9 basis point to 0.53%, and the 30-year bond fell 0.22 basis points to 1.078%. The three-year note dipped 0.8 basis point to 0.253%.

The USD/CAD currency pair rose 0.28% to 1.3411, from an opening of 1.3371, at 16:20 GMT on Tuesday. The EUR/CAD surged 0.73% to 1.5711, from an opening of 1.5599.

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