The Canadian dollar is trading relatively flat against its US peer on Thursday, despite better-than-expected economic data and rallying energy prices. With investors returning to the greenback amid a time of political uncertainty, the loonie is getting the shaft. But is this only temporary?
According to Statistics Canada, the trade deficit narrowed to $3.34 billion in November, up from the $3.73 billion gap in October. The market had penciled in a negative balance of trade of $3.5 billion.
Exports rose 0.5% to $46.76 billion, buoyed by gold shipments. Imports slipped 0.3% to $50.1 billion as Canada purchased less industrial machinery, equipment, and parts.
Canada’s trade surplus with the US fell from $3.1 billion in October to $2.3 billion in November. The country’s trade balance narrowed with other countries as exports ballooned.
The Ivey purchasing managers’ index (PMI) slumped into contraction territory, coming in at 46.7 last month. This was the worst reading since May, driven by declines in employment, supplier deliveries, and inventories.
Earlier this week, the IHS Markit manufacturing PMI clocked in at 57.9 last month, up from 55.8 in November. Producer prices fell 0.6% in November, and raw material prices increased 0.6% during the same period.
Energy markets continued their strong start to 2021, allowing the loonie also to enjoy a decent beginning to the new year. February West Texas Intermediate (WTI) crude oil futures picked up $0.27, or 0.53%, to $50.90 per barrel. February natural gas futures tumbled $0.033, or 1.23%, to $2.651 per million British thermal units (btu).
Canada maintains a current account deficit, so its economy relies on exports for growth. The nation’s top exports are oil and gas, so any significant price change – high or low – can have lasting effects on the loonie and the broader economy.
The bond market was mostly mixed toward the end of the trading week, with the benchmark 10-year bond rising 0.033% to 0.791%. The one-year note dipped 0.015% to 0.145%, while the 30-year bond increased by 0.03% to 1.399%.
The USD/CAD currency pair was unchanged at 1.2680 at 19:28 GMT on Thursday. The EUR/CAD dropped 0.46% to 1.5556, from an opening of 1.5626.