Canadian Dollar Ends Sharply Down on Double Whammy of Canada, U.S. Dat

March 6, 2015 Wall Street Journal

March 6, 2015

By Nirmala Menon

OTTAWA–The Canadian dollar is ending sharply weaker Friday after being driven to the lowest level in 10 days by the double whammy of soft domestic trade data and strong U.S. jobs.

The U.S. dollar was most recently at C$1.2607, up from C$1.2486 at Thursday’s close, according to data provider CQG.

At its peak, the U.S. dollar rose to C$1.2627, the highest level since Feb. 24, marking a 1.1% loss for the Canadian dollar from yesterday’s close.

Dismal Canadian trade figures and a better-than-expected U.S. non-farm payrolls report “acted as a double whammy for the loonie,” said Scott Smith, senior market analyst at Cambridge Global Payments, referring to the Canadian dollar by its popularly used nickname.

Canada’s trade deficit ballooned to a near-record 2.45 billion Canadian dollars ($1.96 billion) in January, 2 1/2 times wider than expected and the second largest in records dating to 1925, as exports were hammered by plunging prices for oil, the country’s top export.

South of the border, the U.S. economy added 295,000 jobs last month and the unemployment rate fell to 5.5% from 5.7%. Economists surveyed by The Wall Street Journal had expected payrolls to increase by 240,000 and the jobless rate to fall to 5.6%.

Mr. Smith said the “great” job figures suggest the U.S. Federal Reserve is likely to change its forward guidance on interest rates at its next policy meeting, and possibly raise rates in June.

“It reinforces the divergence in monetary policy between the U.S. and Canada,” he said.

The Bank of Canada, which cut rates unexpectedly in January as a pre-emptive move against the expected hit from lower oil prices, refrained Wednesday from a second consecutive reduction. Although the rate statement was more neutral than markets had expected, Mr. Smith said the Bank may have to cut rates again later this year depending on how data pan out.

The Canadian dollar has reversed all of Wednesday’s gains over the last two days, and is back at the levels it was trading at on Feb. 24, just before Bank of Canada Governor Stephen Poloz signaled this week’s pause in a speech.

Some economists said details of the trade report are better than suggested by the headline numbers. The “core thesis of a non-commodity export rotation remains and a weaker Canadian dollar has been aiding that narrative,” TD Securities said in a report.

Nevertheless, it said the trade report is likely “a precursor of the pain that is to come” in other economic figures in the first quarter and as such, it expects to see further weakness in the Canadian dollar.

Looking ahead, there are several reports next week that could potentially move the currency, the most important one being the domestic jobs report on March 13.