Canadian Contraction – A Sign for the US?

The Canadian economy squeezed by 0.1% in Jult, the first month of Q3. While the figure came out within expectations, it’s a warning sign for Canada’s biggest trade partner – the USA.

Canada is unique in releasing GDP figures on a monthly basis, rather than once a quarter. After excellent growth first quarter, and an OK second quarter, the fist month of July saw a squeeze.

The first monthly contraction in a year  wasn’t too bad – 0.1% is quite minimal. The economy saw weakness in manufacturing, construction and retail. The chances of a pause in rate hikes grew.

As this result was expected by economists, the Canadian dollar enjoyed the publication – USD/CAD dropped from 1.03 to 1.0230, piercing below the minor 1.0280 support line. The greenback continues to suffer across the board.

More levels below: 1.02, 1.01 and parity. Above – 1.0350,1.05 and 1.0680.

Worries in the US

This is also a sign for the greenback. One of the main reasons for Canada’s weakness is low demand from the US, Canada’s big neighbor. As the US releases GDP only on a quarterly basis, there’s still quite some time until the US will release the initial estimate for its Q3 GDP.

The US had a slow second quarter, with a 1.7% growth rate. This was slightly upgraded today from the previous estimation of 1.6%. The figures published in the US during August were bad. During September,the releases were somewhat better, but there’s still a good chance of contraction in Q3 – a double dip recession.

Even if the US continues to enjoy growth in Q3, it’s highly likely to be slow – too slow for stirring the terrible job market in the US. Too slow to lift the price of homes.

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