The Canadian Dollar Continues to Fall

The Canadian dollar has fallen to a two-month low, and is currently valued at 1.0225 USD. This fall in value has been the result of weak economic performance both world-wide and in Canada.

Retail performance, in particular, has been less than spectacular. Retail and other discretionary spending is down 2%, despite 5.1% growth in non-discretionary spending such as gas, food, and medical expenses, according to Reuters.

Inflation accompanies this poor retail performance and has created other problems. Canada saw 3.3% inflation between April 2011 and April 2010, which was less than the expected 3.4% (according to Bloomberg), but still above the central bank of Canada's desired range of 1-3%. The higher prices from inflation appear to be cutting into consumer discretionary spending, which was nominally unchanged during the same period, but has declined when adjusted for inflation (according to Reuters).

The result of poor retail performance and inflation has been a drop in the value of the Canadian dollar relative to the U.S. dollar. This drop in the value of the Canadian dollar has been especially significant as investors worry that global economic growth is slowing. Evidence of this can be seen in crude oil prices, which have stagnated recently. This stagnation of crude prices is especially notable because crude and other raw materials make up approximately half of Canada's exports.

The Canadian central bank is expected to deliberate on whether or not to raise interest rates again soon, but it is likely that this drop in performance in the Canadian economy will delay raising rates several months. Bloomberg, on the other hand, believes that the overnight rate will still show a hike of 0.5% sometime during the third quarter of 2011.