World’s Most Hated Major Currency Hits 11-Year Low…”Canada is in one of the most magnificent housing bubbles the world as ever seen”
by Wolf Richter
WolfStreet.com
August 14, 2015
Years of near universal easy money policies led to an investment boom in commodities, which led to overproduction that coincided with languid demand, which led to a crash in prices, which led to a rout in commodity currencies. Then the Fed started its cacophony about raising rates; it pulled hot money into dollar assets, pushed up the dollar further, and left commodity currencies twisting in the wind.
Among them, one stands out: the Canadian dollar.
The rout in commodities has ravaged Canada’s oil patch and its mining sector. For example, home sales in Calgary, the epicenter of the oil patch, have plunged 25% year-to-date. Canada is in one of the most magnificent housing bubbles the world as ever seen, and when it pops in Toronto or Vancouver, there will be fireworks. But not yet.
The economy shrank for the first five months of the year, after already shrinking in November last year, and is likely in a technical recession (two quarters in a row of GDP shrinkage). And the problems are spreading.
Krishen Rangasamy, a Senior Economist at Economics and Strategy, National Bank Financial, pointed today at the business investment quagmire:
Business investment spending seems to have dried up in Canada. Trade data shows real imports of both industrial machinery and electronic equipment fell in Q2 at the fastest pace since the 2008/09 recession. The bad news doesn’t end there unfortunately because a further contraction in investment is highly likely in the second half of 2015.
Even low interest rates may not be enough to entice firms to increase investment outlays especially when profits are declining and the growth outlook is weakening due to persistence of depressed oil prices. The investment decline won’t be isolated to the energy sector. Thanks to the sinking Canadian dollar, it’s now more expensive for everybody to import capital goods.
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