3 Strikes And The Loonie’s Out!

Thanks to not one, not two, but THREE bearish reports, the Loonie sank to its three-and-a-half-year low against the Greenback. Who says the comdolls are boring during NFP week? Let’s list down the culprits:

Strike 1: Weak Canadian trade data

Canada’s trade reports don’t usually move the markets especially when released with its US counterparts. Yesterday was an exception though, since we saw a not only a weak November reading but also a significant downward revision in October’s figures.

Canada’s 75 million CAD trade surplus (which broke a 21-month streak of deficit) was revised to show a whopping 908 million CAD deficit. On top of that, trade deficit ballooned to 940 million CAD in November when analysts had only been expecting a 100 million CAD shortfall. Talk about starting the year with a bang!

Strike 2: An even weaker IVEY PMI report

Not two hours after the significantly weaker trade reports were printed, the IVEY PMI report re-energized the Loonie bears. The indicator for business conditions in Canada dropped from an index reading of 53.7 in November to 46.3 in December. Not only is it the first decline in four months, but it’s also the fastest rate of decline in four years. Yikes!

Strike 3: Dovish statement from Stephen Poloz

The cherry on top of the Loonie bears’ cake was Bank of Canada (BOC) Governor Stephen Poloz himself, who said that he’s not worried over international calls for the BOC to raise interest rates.

Contrary to what Finance Minister Jim Flaherty hinted on Sunday, the BOC has no immediate plans on giving in to pressure to hike its interest rates. Poloz believes that a rise in long-term market rates (a result from the Fed unwinding its stimulus) won’t hurt the Canadian economy much as the housing market is headed for a soft landing anyway. The BOC head honcho stressed that they’re unlikely to change their rates unless reports on inflation, consumer spending, and employment prompt them to.

With weak trade and manufacturing numbers AND a bearish statement released all in one day, it’s no wonder that the Loonie was yesterday’s biggest loser! How long will the weakness last though? Did market players overreact to yesterday’s reports or were they pricing in a start of a new trend? What do you think?