by Mish

A rate cutting move is even more likely now, as retail sales unexpectedly fell 0.1% in August vs. an expected gain of 0.3%.

In response, the Loonie Plunges to Lowest Level Since March.

The loonie is on pace for the biggest weekly decline since May as the data add to concern about Canada’s economy. The slump began Wednesday when Bank of Canada Governor Stephen Poloz said that officials “actively” discussed the possibility of adding more stimulus into the economy.’

“So now we know why the BOC considered easing,” said Greg Anderson, global head of foreign-exchange strategy in New York at Bank of Montreal. “Economic growth in the third quarter doesn’t look as good as expected, inflation is below target and it’s unclear where an acceleration would come from.”

The loonie fell 0.8 percent to C$1.3332 per U.S. dollar as of 10:06 a.m. in Toronto, reaching the weakest level since March 16. The Canadian dollar is down 1.5 percent this week, the worst performance among Group-of-10 currencies.

The yield on the country’s two-year federal government bond fell for the fifth day to 0.51 percent, heading for the steepest weekly decline since June.

The probability of a BOC interest-rate cut this year rose to 16 percent from 7 percent Thursday, overnight index swaps data compiled by Bloomberg shows.

RECOMMENDED ARTICLES

Retail sales fell 0.1 percent in August, compared with forecasts for a 0.3 percent gain. Consumer inflation accelerated for the first time in five months in September to 1.3 percent, however the jump was below the 1.4 percent rate economists were forecasting.

Wild Rides in Loonie

The Loonie soared from 1.60 to the US dollar to highs near 0.94 to the dollar from 2001 to 2007, and again in 2011.

Since February of 2011, the Loonie has declined 27.5% but is better than the end of 2015 wen it touched 1.469 per US dollar.

Those swings had a lot to do with Canadian exports to China and commodity prices. Now, with the Fed discussing hikes, the Bank of Canada discussing cuts, and Vancouver real estate finally slowing, the Loonie is again under pressure.

Canada Yield Curve Inversion

In Canada, as everywhere else, central banks lower rates at the first sign of trouble. But with the Canadian 2-Year bond at a mere 0.517% there is just not that much room for cuts.

Image placeholder title

The 3-Month bond yield is 0.49% and the 1-year yield is at 0.53%. This makes the yield curve partially inverted as the 2-year yield is less than the 1-year yield.

Combined, these are strong recession signals for Canada.

Mike “Mish” Shedlock

Retail Sales Unexpectedly Sink 2nd Month: Supposedly Car Sales Rise 3rd Month

The consumer has all but thrown in the towel as retail sales unexpectedly declined for the second month.

Retail Sales Unexpectedly Dive: Spotlight on Cars and the “Amazon Effect”

Retail sales rose a mere 0.1% in November according to the Census Department Advance Monthly Retail Trade Report.

Canadian and Australian Yield Curves Invert- Clear Recession Signals

Those looking for clear recession signals in Canada and Australia have them. Portions of the Canadian and Australian yield curves are now inverted. Canada has been in a state of inversion for at least four weeks.

Surefire Recession Signal in Pictures

The strength of inversions widened today. That's a strong recession warning, but it is not the actual recession signal.

Wallonia Sinks EU-Canada CETA Trade Agreement: What Happened?

Despite intense negotiations for the past two weeks, an emergency meeting of EU officials, huge pressure on Belgian officials, and last second agreement changes to the trade pact, the Wallonia region of Belgium held firm and vetoed CETA.

Global Growth? Retail Sales Flop in US, UK, Canada, Germany, Australia

Consumers unexpectedly threw in the towel in 5 countries but the central banks and the IMF insist everything is fine.

Toronto Home Prices Sink Most on Record: Did the Bubble Just Burst?

The three-month average home price in the Toronto area is down a record 14.2% following a flood of new listings and an interest rate hike by the Bank of Canada.

Lesson From Canada: There Really Are No Rate Hike Targets

Despite an inflation spike in Canada, Bank of Canada Governor Stephen Poloz says "Rate hikes Aren't Mechanical."

US Recession Odds Hit 55% According to Deutsche Bank Model

A Deutsche Bank yield curve model says the odds of a US recession are now 55%. Specifically, the model notes the flattening of the yield curve, something I have mentioned numerous times recently.