The Loonie’s price action has been as dismal as the reviews for Suicide Squad so let’s take a quick look at the factors that have been pushing the Canadian currency lower these days.
1. Weak July Jobs Data
Perhaps the biggest factor that spurred a sharp Loonie selloff last week was the downbeat Canadian jobs report for July, as the economy wound up losing 31.2K jobs then instead of chalking up the estimated 10.2K gain.
Reviewing the components of the July report makes the labor situation look even gloomier since full-time employment fell by 71K only to be offset by a 40K gain in part-time hiring.
However, the latest jobs report also revealed that the wildfires in Alberta and the resulting evacuation from the Fort McMurray area may have skewed the numbers a bit because Statistics Canada was unable to gather employment data from several affected areas. Apart from that, the end of summer employment for students also factored in the job losses for the period, as well as seasonal adjustments in educational services positions.
Employment in the natural resources industry is still on the decline, with energy-rich Alberta reporting a 0.7% increase in its unemployment rate to 8.6% – its highest level since September 1994.
2. Falling crude oil prices
Speaking of natural resources, the recent slump in crude oil isn’t doing the Loonie any favors either. While the commodity managed to make a quick recovery after the U.S. Energy Information Administration report showed a significant decline in gasoline stockpiles, the numbers still added up to a buildup of 1.4 million barrels in crude oil inventories.Aside from that, the continuous rise in U.S. oil rig counts is bound to kick in sooner or later, translating to higher oil production and supply. According to oil-field services company Baker Hughes, the number of rigs drilling for oil in the U.S. increased for the sixth consecutive week to 381.
As it turns out, the crude oil price gains from much earlier in the year are encouraging more drillers to resume operations on improving profit margins. However, global demand still remains generally weak, thereby keeping a lid on oil price gains and weighing on the positively correlated Canadian dollar.
3. Slower trade activity
Last but most certainly not least is the downbeat Canadian trade balance, which indicated a wider 3.6 billion CAD deficit versus the projected 2.5 billion CAD shortfall for June. To make things worse, the May reading was downgraded to show a 3.5 billion CAD deficit from the initially reported 3.3 billion CAD shortfall.
While the components of the June report showed that total imports were up 0.8% and that exports rose 0.7%, it’s worth noting that its exports to its trade BFF Uncle Sam shrank 1.2% during the month. Fortunately, the increase in energy products prices back then was more than enough to make up for the slump in volumes and yield positive export figures.
From a quarterly perspective, Canada’s trade deficit swelled from 6.4 billion CAD in Q1 to 10.7 billion CAD in Q2. Number-crunchers are estimating that this could contribute to a 1.5% contraction in the Canadian economy for the second quarter, fueling speculations of an interest rate cut from the Bank of Canada in their September meeting.