The eurodollar declined against the Canadian dollar on Friday after data indicated that the Canadian economy expanded at a higher rate than anticipated. The loonie’s recovery was also aided by a big weekly gain in oil prices and an 11-year low current account deficit. From a high of 1.4706, the EUR/CAD pair dropped 100 pips to reach 1.4606 before closing at 1.4622.
The Canadian economy grew at an unexpectedly robust annual rate of 3.7% in 2Q19, higher than the rate forecast by the bank of Canada, aided by a rebound in goods exports. However, business investment decreased, and consumer spending growth slowed.
On am-o-m basis, GDP grew 0.2% in June, versus 0.1% growth anticipated by economists. In the previous month, the economy grew by 0.2%. 17 out of 20 sectors performed well and compensated for a decline in manufacturing.
Andrew Kelvin, the chief Canada strategist at TD Securities, explained why the Bank of Canada might avoid contemplating a rate hike even with the release of decent GDP data. “The Bank of Canada was, I think, always going to be downplaying any economic strength we saw in this report. The fact that we are seeing these cracks in business investment and household spending makes it that much easier for them to do so.”
In the meantime, the price of crude oil, which generates considerable export revenue for Canada, ended Friday with the biggest weekly gain since July. A drop in the US stockpiles, threatening hurricane in Florida, and moderation in the US-China trade eloquence was responsible for the crude oil price rally.
Likewise, Statistics Canada had reported that the country’s current account deficit narrowed to C$6.38 billion in 2Q19, from C$16.63 billion in 1Q 2019. Economists had forecast a deficit of C$9.80 billion.
In Europe, Germany recorded a steep drop in retail sales in July, reflecting weak household spending at the beginning of 3Q 2019 as the labor market started to lose its momentum amidst the economic slowdown.
Retail turnover declined at a faster-than-anticipated 2.2% m-o-m in July, nearly offsetting a 3% increase in June, according to data published by Destatis. Analysts had anticipated sales to decline by 1.4%. The reported figures represent the fastest rate of decline so far this year.
Likewise, the Italian National Institute of Statistics reported an increase in the country’s unemployment rate to 9.9% in July, from 9.8% in the earlier month. Economists had anticipated a decline in the unemployment rate to 9.6%. The report indicates that nearly 18,000 jobs were lost in July.
The better-than-anticipated GDP growth rate, crude oil rally, and narrower current account deficit are expected to keep the Canadian dollar bullish against the euro in the next few days.
Technically, the EUR/CAD pair is declining after facing resistance at 1.5150. The next major support is anticipated only near 1.4460. The currency pair is trading below its 50-day moving average. Furthermore, the oscillator of the moving average is having a negative reading. As a result, we can expect the EUR/CAD pair to move down in the short-term.
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