Forex News – Canadian Manufacturing slows, Loonie falls

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The Canadian Manufacturing PMI Index was released today showing a contraction in factory growth from April.

The RBC Canadian Manufacturing Purchasing Managers’ Index, launched for the first time today ay and complied by research firm Markit, gave a reading of a decline from April’s 56.3 to 54.8 in May.

The new PMI is produced with input from the Purchasing Management Association of Canada. Data collection from 450 companies, small and large, began in October 2010.

The data indicates this is the second decline, suggesting a slowing down in manufacturing and new orders from factories, raising concerns for the health of the Canadian economy.

The manufacturing sector has been a weak link in Canada’s recovery, struggling with soft U.S. demand and a recent appreciation of the Canadian dollar, which has made Canadian goods more expensive in foreign markets.

Canada is a large exporter to its neighbour the United States, and since the American economy is also slowing down, this is affecting Canadian exporters. Recently a spate of weak economic data from the US showed a contraction in growth activity. Yesterday, the US released their Manufacturing PMI data, much worse than expected, falling to 53.5 from previous 60.4. Predictions were for 58.1.

However, the rise of the Canadian Dollar may be capped as long as commodity prices keep falling, as the Loonie is a commodity-linked currency. Canada is a producer and exporter of crude oil, whose price has been declining this week.

Since the release of the data the Canadian Dollar has lost 25 pips. USDCAD rose from lows of 0.9769 to highs of 0.9794 within thirty minutes.