Canadian Dollar Tumbles as Economic Data Show Signs of Slowdown

(Bloomberg) — Canada’s dollar slumped Tuesday – at one stage falling by the most in more than a month — even as major peers like the Australian and New Zealand dollars gained ground against the greenback.

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The currency was weighed down by signs that the domestic economy is wavering, although the scale of the move relative to major peers had some wondering whether the shifts were more a function of flow and market dynamics than a drastic rethink of the overall outlook.

The tumble also came in the wake of news that British bank HSBC Holdings Plc plans to sell its Canadian unit to Toronto-based Royal Bank of Canada, a transaction that could potentially spur outflows, while preliminary data for October showed the nation’s economy appears to be stalling out and crude oil prices handed back much of their earlier gains. With month-end drawing near, positioning dynamics could also be playing a role, analysts suggested.

The Canadian currency weakened as much as 1.1% to C$1.3646 per US dollar, its biggest intraday slide since Oct. 13, before moderating. It was around 0.6% weaker on the day at 2:30 p.m. New York time and on track for its third straight day of declines.

“This feels flow related, but with questionable fundamental underpinnings,” Canadian Imperial Bank of Commerce currency strategist Bipan Rai wrote in a note to clients. “I suspect that participants are squaring up strategic CAD longs on the crosses. But even then, the move we saw today was very excessive.”

He said that while he had “reservations with the guts of the GDP report,” he had doubts about its role in driving the FX market move. Preliminary data show gross domestic product was flat in October, Statistics Canada reported Tuesday, potentially giving the central bank leeway to slow down the pace of rate hikes. The Bank of Canada has already begun slowing down its pace of rate hikes, after increasing the benchmark overnight lending rate to 3.75% from the emergency pandemic low of 0.25% that held until March.

West Texas Intermediate crude oil prices, meanwhile, held below $80 a barrel following an unconfirmed report that OPEC+ will stick with its current oil output policy rather than potentially trimming supply further. While the benchmark was up around 1.6% on the day, it was well below its session peak, having risen as much as 3.1% earlier on Tuesday.

(Updates pricing, adds comments from strategist)