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"Roaring" Canadian Dollar Unstoppable as Economy "Makes Hay in May"

Manufacturing data aids a rally in CAD

  • Quotes:
  • Pound to Canadian Dollar exchange rate: 1.63
  • US Dollar to Canadian Dollar exchange rate: 1.2461
  • Euro to Canadian Dollar exchange rate: 1.4612

The Canadian Dollar was seen outperforming its rivals on July 28 following the release of economic growth data that easily put expectations in the shade.

Statistics Canada reports real gross domestic product (GDP) grew 0.6% in May, wells head of the 0.2% figure forecast by economists.

The headline figures confirm the Bank of Canada was justified in raising interest rates earlier in July as this is an economy that is running on all cylinders.

Bets of further interest rates have increased following the data release which has in turn fired up demand for CAD.

"The Canadian economy made hay in May, buttressing market perceptions of the country as a G7 leader in growth," says Avery Shenfeld, an economist with CIBC Capital Markets in Toronto. "The 0.6% jump in monthly output did get a helping hand from from a large lift in oil and gas as an upgrader was switched back on after earlier downtime, but there were also decent contributions to growth from manufacturing, retail and finance."

The result positions us for a roughly 3 1/2% second quarter, the second straight quarter in that territory.

"Upward revisions to growth forecasts will be bullish for the C$ and bearish for fixed income, although we're still inclined to see the Bank of Canada waiting until October, given low inflation and a roaring currency," says Shenfeld.

14 of 20 industrial sectors in the Canadian economy saw increased output, and this was the seventh consecutive monthly increase.

Goods-producing industries rose 1.6%, led by mining, quarrying, and oil and gas extraction, more specifically non-conventional oil extraction.

Service-producing industries were up 0.2%, led by finance and insurance services.

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