The Canadian dollar fell to its weakest level since October 2010 against its US counterpart following weak Canadian retail sales data.
Retail sales declined 0.6% to CAD 37.5 billion in July, after increasing the previous three months. Lower sales were reported in 7 of 11 subsectors, with motor vehicle and parts dealers accounting for most of the decline. Excluding motor vehicle and parts dealers, retail sales were flat.
USDCAD hit an eleven month high of 1.0360 following the news.
The Canadian dollar has been weakening sharply since Wednesday’s US federal Reserve statement sent the greenbacks soaring across the board due to its liquidity value. The Fed said that there is “significant downside risk” to the U.S. economy.
This initiated the change in market sentiment as risk was dampened and commodity linked currencies like the Canadian dollar was hurt, especially crude oil prices tumbled. Crude is Canada’s main export.
In recent months, the Canadian dollar had had been mostly stronger than its U.S. counterpart since Canada’s economy has generally been a bright spot amid global woes, helping to buoy the loonie. However, it cannot continue to outperform if its largest trading partner, the United States, continues to slump.
In periods of uncertainty given the global macro backdrop, investors are going to pile into safe havens, which at the moment is the U.S. dollar, even though nobody has a strong positive view of the U.S., but the greenback is very liquid and that is what is saving it.
Meanwhile, market sentiment was further battered today after HSBC’s China Flash PMI showed the factory sector shrank for the third consecutive month in September, pointing to a slowdown in the world’s second-largest economy.