Loonie headed for worst January in over 40 years

The Canadian dollar has mounted a recovery after weakening to a five year low against its US counterpart earlier, but remains on course for a large monthly decline.

By mid-afternoon in New York, USD/CAD had fallen 0.26% to 1.1128, after having risen as high as 1.1225 earlier in the trading session. The nosedive in emerging-market currencies has been pushing flows to currencies perceived as being safer, such as the Japanese yen and the US dollar, which contributed to USD/CAD’s rise to its highest level since July 2009.

The currency pair was unable to hold above the 1.12 level though, as improvements in the stock market in afternoon trading helped alleviate risk-aversion and investors mulled over a report from Statistics Canada showing Canadian economic growth in line with projections made by the Bank of Canada in its Monetary Policy Report published earlier this month. Canadian GDP grew 0.2% in November, after the 0.3% growth seen in October, for a year-on-year change of 2.6%.

Canadian GDP looks like it is growing at a solid, rather mundane pace judging by the data so far, although we have yet to see figures for December when much of the country was affected by winter storms. The downside risk, therefore, still leans more towards the BOC easing rates rather than tightening, and this expectation, particularly since the central bank reduced its inflation forecast, has been depressing the Loonie this year. The Canadian dollar is down more than 4% in January.

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