The Canadian Dollar, or Loonie as it’s affectionately known, had a rough Friday. It decreased 0.65% in value against the US Dollar. The Loonie lost for the fifth consecutive day. This slump wipes out all of the previous increases and underscores the rising economic challenges overseas and on the home front. The biggest factor pushing this drop is very disappointing employment data out of Canada. What’s more, persistent fears over the health of the US economy, Canada’s biggest trading partner, have been weighing on the toll.
The value of the Canadian Dollar is extremely variable. These changes are inextricably tied to economic indicators that highlight the country’s economic prosperity. In only the latest evidence of a move toward recession, Canada reported a stunning loss of jobs for August. This has sent shockwaves among economists and investors alike. These figures have produced a huge amount of publicity. Together, they fall neatly into the broader economic currents that are dictating the current state of Canada-US trade relations.
Contraction in Employment Data
For the Canadian economy, August was a painful month, starting with the hiring numbers indicating a deep contraction. This decline may be masking some serious labor market deficiencies. It indicates that employers are becoming more risk averse in the face of an uncertain economic outlook. Analysts worried that this trend would be a drag on consumer spending, putting even more pressure on an already fragile pattern of economic growth.
The impacts of these employment numbers go far beyond direct job cuts. A further weakened labor market can deepen the blow by eroding consumer confidence. When Americans feel unsure, they stop spending—which hurts businesses and our broader economy. As the Loonie continues to slide, concerns about the labor market’s health may exacerbate the currency’s volatility against its US counterpart.
Influence of the US Economy
The Canadian Dollar is highly correlated to the performance of the US economy as the US is still Canada’s biggest trading partner. Apart from the political atmosphere, economic indicators coming out of the states play the biggest role in driving investor confidence on the Loonie. Latest available data out of the United States has been flashing signals of resilience. Soaring job creation and upwardly revised consumer spending data contrast sharply with Canada’s recent labor downturn.
Consequently, the gap in economic performance between the two countries adds further strain on the Canadian Dollar. This saw investors curl to these divergences, usually through a flight to safety US Dollar which culls much demand for the Loonie. This trend underscores the importance of monitoring economic developments in both countries, as shifts can lead to rapid changes in currency values.
Impact of Oil Prices
Canada’s economy is still very dependent on its natural resources, especially petroleum, which makes up about a third of Canada’s exports. Not surprisingly, changes in oil prices have a strong and immediate effect on the value of the Canadian Dollar. As oil price increases are generally supportive of the Loonie, oil price decreases can be an important factor in adding to its current weakness.
In the environment of recent months, with global economic uncertainty and shifting demand toward oil, oil prices have felt significant pressure. With these prices continuing to be volatile, they add to the uncertainty of where the Canadian Dollar’s future path is headed. This is a relationship investors watch very, very closely. Since they’ll adjust their plans according to predicted future shifts in oil market fundamentals.