USD/CAD Rises As Canadian Economy Contracts in May, Energy Prices Slump

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The Canadian dollar slipped against the US dollar at the end of the trading week amid mixed economic data. The loonie has been struggling against the greenback over the last month, although it the Canadian buck has strengthened. But the currency’s boost was capped on lower crude oil prices.

According to Statistics Canada, the gross domestic product (GDP) tumbled 0.3% in May, matching market expectations and representing the second consecutive monthly drop. However, this is an improvement from the 0.5% decline in April.

The economy was mostly weighed down by construction, manufacturing, and the services-producing sector. Overall, 12 of the 20 industrial sectors reported contraction.

Producer prices soared at an annualized rate of 16.8% in June, higher than the market forecast of 16.2%. This was the sixth straight monthly increase, but it was down from the 16.9% in the previous month. The biggest gains were concentrated in food, particularly meat and animal feed.

On a month-over-month basis, the producer price index (PPI) was flat at 0%. But, if lumber prices were added to the equation, the PPI would have jumped 0.6% in June.

Raw material prices surged 3.9% last month, up from the 3.2% in May. Year-over-year, raw material prices increased 38.1%, easing from the 40.1% spike in the previous month.

Earlier this week, the statistics agency reported that the annual inflation rate surged 3.1% in June, down from the 3.6% spike in May. The core inflation rate, which removes the volatile food and energy sectors, increased 2.7%.

Energy commodities slumped on Friday. September West Texas Intermediate (WTI) crude oil futures tumbled $0.24, or 0.33%, to $73.39 per barrel on the New York Mercantile Exchange. September natural gas futures plummeted $0.196, or 4.83%, to $3.863 per million British thermal units (btu).

Canada maintains a current account deficit, so the country relies on exports for economic growth. Since oil and gas remain the nation’s top shipments, any price change can impact the loonie and the broader economy.

The bond market was mostly in the red on Friday, with the benchmark 10-year yield down 0.01% to 1.196%. The one-year bill shed 0.01% to 0.295%, while the 30-year bond was unchanged at 1.753%.

The USD/CAD currency pair rose 0.24% to 1.2477, from an opening of 1.2449, at 14:56 GMT on Friday. The EUR/CAD dropped 0.06% to 1.4788, from an opening of 1.4796.

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