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USD/CAD up on GDP, Weaker Oil

Published December 22, 2016
  • The Canadian dollar weakened against its US counterpart on Wednesday, paring most of the previous day's gains as oil prices fell and investors braced for weak domestic economic data
  • Canadian Consumer Price Index data (change in the price of goods and services purchased by consumers) disappointed, indicating slight weakness in Canadian inflation; Core Retail Sales and Retail Sales alone showed a marked improvement
  • Canada’s annual inflation rate decreased to 1.2 percent from October's 1.5 percent, short of economists' estimates for 1.4 percent, as food prices retreated
  • This was in direct contrast with very positive data out of the US; US Economic Growth (GDP) showed a number of 3.5% in Q3 2016 with biggest contributions a range of factors including services spending, property and construction by state and local governments
  • Oil, one of Canada's major exports, fell after Libya said it expects to boost production over the next few months and a report showed a surprise build in US crude inventories last week
  • Libya remains exempted from the OPEC deal and will increase product by 270,000 barrels per day, with capacity to ramp up production all the way to 1.2 million barrels per day
  • This will only increase pressure on the OPEC deal as members may have to even further cut production in order to deal with Libya’s increase
  • Donald Trump's US presidential election win last month has triggered uncertainty about the outlook for NAFTA, which economists say will discourage investment
  • Conversely, a positive development for Canada's economy would be approval of TransCanada Corp's proposed Keystone pipeline to carry oil sands crude from Alberta to the US Midwest
  • Trump was "very supportive" of the pipeline in their first conversation after the US election; Canada may get some spillover effects from proposed stimulus spending in the US, which is Canada's largest trading partner, however, US trade policy remains uncertain going forward

Charts: (1) US GDP 2000-2016 (2) Libya Oil Production