In a surprising turn of events, gross domestic product slowed in the third quarter for the world’s 11th largest economy. The weaker than expected figure seals the deal when it comes to any speculated rate hike in the near term for the Bank of Canada. And, given the technical outlook, the Loonie’s fate as well.
According to Statistics of Canada figures, GDP for the third quarter gained by only 0.6% on the quarter over quarter basis. The figure falls below the 0.8% analysts’ estimate and brings the overall annualized figure to just a 1% gain from 1.2% - in line with Bank of Canada estimates.
Ultimately it was slower exports and a decline in capital investment spending that did the growth report in. For the three month period through September, exports weakened by a pessimistic 7.8% with fixed capital spending declining by 2.2% - the fastest pace in the last 3 years. Ultimately, the capital spending figure is a bit of a concern as it reflects a reining in of corporate spending. With the near term future still clouded by a European fiscal crisis and the impending US Fiscal Cliff debate, Canadian business leaders seem reluctant to invest in any corporate improvements.
Incidentally, today’s report not only confirms earlier Bank of Canada notions of a potential slow down period, it also supports the notion that higher rates would be inappropriate at this time. Last month, while stating a reduction in the near term economic outlook, Bank of Canada Governor Mark Carney stated that the necessity of an increase in the current benchmark rate remained “less imminent”.
The monetary sentiment is likely to act in favor of US dollar bulls, when it comes to the Canadian dollar. With support firmly established at 0.9886 38.2% fib support, the USDCAD major pair could be in store for an advance towards the key parity figure. Penetration above the 1.0000 exchange rate would automatically activate the 1.0050 resistance barrier.
Source: FXTrek Intellicharts