Canadian Dollar Down as Domestic GDP Data Disappoint

By David George-Cosh

July 31, 2012, TORONTO–The Canadian dollar drifted lower against the U.S. dollar Tuesday, retracing gains made earlier in the week after a reading on the country’s gross domestic product showed the economy may be slowing more than the Bank of Canada’s forecast.

The U.S. dollar was recently at C$1.0025, from C$1.0022 at 8:00 a.m. EDT (1200 GMT) Tuesday morning, and C$1.0015 late Monday, according to data provider CQG.

Canada’s GDP in May was 0.1%, down from an unrevised 0.3% in the previous month and one tenth of a percentage point below consensus forecasts due to reduced output in manufacturing and the oil and mining sectors.

That miss led some economists to suggest Canada’s second-quarter GDP will be slightly under the Bank of Canada’s forecast of a 1.8% expansion.

Canada’s sluggish growth prospects caused the loonie to underperform its commodity-based peers such as the Australian dollar and the Norwegian krone.

Overall, currency markets remained essentially on hold Tuesday as investors kept watch ahead of policy announcements from the U.S. Federal Reserve, the Bank of England and the European Central Bank.

“The market is waiting on something for the ECB, some action, some concrete announcement this week if there’s something to really sink their teeth into,” said Mark Frey, vice president and chief market strategist at Cambridge Mercantile Group Corporate in Vancouver.

“The market is prepositioned for a bit of a bullish run which is supportive for commodities and the Canadian dollar,” he said.

U.S. data was mixed on Tuesday, with figures for personal consumption in June slightly under expectations, while personal incomes rose 0.5% in June, a stronger-than-expected result.

In other data, U.S. home prices were up during May for second consecutive month, according to the Standard & Poor’s/Case-Shiller home-price indexes, while the Conference Board’s consumer sentiment index increased to 65.9 in July, from an upwardly revised 62.7 in the prior month.

These are the exchange rates at 3:35 p.m. EDT (1935 GMT) and 8:00 a.m. EDT (1200 GMT) Tuesday, and late Monday.

        USD/CAD          1.0025       1.0022    1.0015
        EUR/CAD          1.2340       1.2306    1.2280
        CAD/JPY           77.93        77.85     78.03

Write to David George-Cosh at david.george-cosh@dowjones.com