The world’s 10th largest economy is undergoing a period of pressure at the moment. A surge in oil prices on Friday on the back of an OPEC agreement boosting production saw the oil-linked Canadian dollar climb wearily off a two year low against its US dollar counterpart. However, the gains made on Friday (0.35 percent) do little to paper over the cracks appearing in the Canadian economy.
The last few weeks have seen a series of disappointing and weak economic data releases. Poor employment, inflation, manufacturing sales and most recently retail sales data have started to raise serious questions over the health of the Canadian economy. To compound matters further, the recent G7 +1 summit held in Quebec did not produce any positive agreements. In fact, the reverse can be said. On leaving the summit to attend a summit with North Korea in Singapore, US President Donald Trump reiterated his threat to impose a 25 percent tariff on all cars imported into the US. Auto vehicles and associated parts are Canada’s largest export after energy and such a move, if followed through, is forecast to shave a minimum of 0.6% off Canada’s total Gross Domestic Product. There is also the small matter of 180,000 people that are currently employed within the Canadian Car industry, primarily in the Ottawa region. The US is Canada’s largest export market for autos and such a move could devastate the region in a similar fashion that Detroit in the US has been devastated by the failing car industry there.
In other areas the Canadian economy is under pressure. There is a thriving Canadian crypto community with trading volumes recently hitting all time highs. However, proposed regulation intended to boost Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime (AML/ATF), has been heavily criticized for being too robust with a loss of $60 million over 10 years for businesses that deal in cryptocurrencies.
All eyes will be on the next meeting held by the Bank of Canada on July 11th. A commonly held view among traders was that the central back will raise interest rates. However, with Canadian retail sales suffering their heaviest decline in two years and the Canadian dollar hovering just above a two year low, it is quite possible that the interest rate hike will be delayed until later this year.