Loonie Decreases on Weaker Economic Growth than Expected

The Canadian Dollar, also known as Loonie, has almost declined to the lowest level in last 8 months against its US counterpart, mainly because of the slowing growth in China, which is the 3rd largest destination for the Canadian exports. Incidentally, the Bank of Canada is expected to hold its interest rate steady. Apart from that, on 1st March, statistics showed that the economy of Canada grew by 0.6% in the last quarter of 2012, less than the projected growth of 1.6%. The rate decision will be made by the Bank of Canada on 6th March. In an attempt to provide support to Canadian economy, the officials of the Bank of Canada have kept the benchmark interest rate of the country at 1% since September, 2010.

According to the Currency Analyst of ForexLive, Adam Button, the forex traders are finding it easier to sell Loonie at this point of time on any geopolitical hiccup or other sort of negative news. Adam added that even there is some good news; the rally of Loonie is expected to be minimal.

Loonie declined by 0.2% against USD and currently is priced at C$1.0284. On 1st March, it actually touched C$1.0342 marking the lowest point since 29th June. Not only against USD, but Loonie declined against majority of the 16 most-traded peers of the same. In 2013, so far, Loonie has declined by 1%. Euro has increased by 1.4%, whereas, the greenback has recorded surge of 3%.

The benchmark 10-year Canadian Government bonds were more or less unchanged as the yields were set at 1.79%. On the other hand, the 2.75% security scheduled to mature in June, 2022 has increased by 3 cents and is now set at C$108.11.

On 25th February, the Governor of Bank of Canada, Mark Carney commented that some of the highlighted risks in last month to the Canadian economy are now materializing and that policy makers have understood the continuously decreasing impact of interest rate increases.

Dean Popplewell, the Head Analyst of the online foreign currency trading firm, OANDA, stated that the US economic data is expected to be more positive in future and because of the sequester, USD is not expected to appreciate on back of that. He added that the Bank of Canada has been hawkish; however, this can still provide Loonie a kind of risk proxy support.