Canadian Dollar Gains Despite Poor GDP Data

On Tuesday, the Canadian dollar rallied against its US counterpart, gaining just over 0.3% against the US dollar. The trade may have been fueled more by weakness on the part of the US dollar as opposed to secular Canadian dollar strength. The US dollar index fell just over 0.25% in the early morning session. The EUR/USD pair rallied over 0.3%, which may have been the primary motivator behind the move in the US dollar index. The index is measurement of the dollar's general strength against a basket of major currencies. Canadian GDP reported at negative 0.1% month-over-month, which was less than the anticipated gain of 0.2% and less than the prior reading of 0%. Weaker Canadian GDP data may be expected to send the Canadian dollar's value down, as a stronger domestic economy is traditionally a negative sign for a currency's relative value. As Canada's economy contracts, investors may be expecting the Canadian dollar to weaken further still. Yet, the dollar's weakness may be more severe than Canada's. CaseShiller home data was reported on Tuesday along with the Canadian GDP. It indicated that the housing market in the US had not yet bottomed, as home prices continued to fall in the US. The composite 20-city reading declined 3.67% on an annual basis, while analysts had anticipated a decline of only 3.30%. Housing prices have now declined for three straight months. Also of interest was talk of another LTRO in Europe. The previous LTRO helped to boost markets in the Eurozone and may have led to a spill-over effect in the US economy, as investor sentiment was boosted on the perceived notion that the European situation was not as bad as anticipated. The dollar may be trading higher on general positive sentiment. Much of the dollar's relative value may be as a perceived safety play. The dollar gained record strength in late 2008 during the financial crisis. Even as the US economy seemed to be imploding, the US dollar moved higher as investors may have come to believe that it was the safest bet. Likewise, when Standard & Poor's downgraded the US's sovereign credit rating, US treasuries paradoxically rallied. If investors believe that the global economy is improving, they may continue to pull their holdings out of the US dollar and put them to work in other areas. Thus, the Canadian dollar could continue to gain against the US dollar, even if the Canadian economy is floundering. Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.