The Canadian dollar has turned weak against the greenback despite signals of upward momentum in the Canadian economy. The currency was also affected after General Motors declared that it was moving out of Canada as part of its restructuring plan.
Labor participation, private-sector employment, and General Motors plant closure
Canada’s labor market is performing impressively, but the decline in the labor force participation rate (LFPR) signals medium to long-term risk. Since October 2017, the LFPR has declined slightly to 65.2%, from 65.7%. Notably, the LFPR is expected to drop further because there’s a widening gap between young individuals entering the job market and older Canadians on the cusp of retirement.
The Finance Minister Bill Morneau’s economic update also suggests that investment in Canada, which is crucial for future prosperity and job creation, has also declined. Between 2013 and 2017, foreign direct investment decreased by 55.1% while Canadians boosted investments abroad by 73.7% percent over that same period.
The worries don’t end there. Another major concern is the gap between private and public sector employment. Throughout a period of one year, government employment has grown at a rate of 1.5%, while private sector employment has increased at a rate of 1.1%.
Prime Minister Justin Trudeau and his Liberals are depicting the national economy as a robust engine. But the subtle elements underneath the surface indicate that there are numerous looming issues.
General Motors announced yesterday that its assembly plant in Oshawa, which has existed since the 1950s, will be closed. The decision to stop production is estimated to have an impact on approximately 2.500 employees. The company said it intends to renovate the facility as it pursues a new corporate strategy, including investments in electric vehicles and autonomous vehicles.
GM also shuts down four other US facilities, affecting 6,000 employees. In general, GM plans to reduce employees by 15% and to reduce the number of managers by 25%. Ontario Prime Minister, Doug Ford, revealed that he discussed the issue with GM executives and they simply told him that “we can’t do anything,” even if the provincial government interfered. Unifor, the union of auto workers in Oshawa, has announced that it intends to meet GM executives. The association also revealed that no vehicles are set to be assembled at the facility past December 2019.
Mary Barra, GM’s chief executive officer, said: “This industry is changing very rapidly and we want to make sure we’re well-positioned.”
The issues discussed above indicate that the USDCAD pair will remain strong in the near future.
Technically, the USDCAD pair is trading above its 50-day moving average, and the DSS Bressert indicator is near the oversold region. The currency pair is also moving along an ascending channel. Therefore, we are expecting the currency pair to remain bullish.
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