Canadian Economy making a moderate recovery

Monday, March 22, 2010

Last week the Euro fell against 15 of its 16 major peers as EU leaders appeared unable to agree a cohesive plan to bailout Greece. On Friday it tumbled 0.60% against the US Dollar closing trading at $1.3528. The previous day it had fallen as much as 0.93% against the USD.

Late last week Greek Prime Minister George Papandreou issued EU leaders with a one week deadline to come up with a concrete rescue plan for Greece and challenged Germany to abandon its doubts about rescue plans. Papandreou said he may turn to the IMF to overcome Greece’s debt crisis unless leaders agree to set up a lending facility before an EU summit due to be held in Brussels on March 25th and 26th. The EU commission President Jose Manuel Barrosa has urged immediate action on the matter and said the EU should spell out its rescue plan at the summit later this week.

Friday saw the release of Germany’s producer price index which remained unchanged in February after increasing by 0.8% in January. Market expectations had been for a 0.1% increase. Year-on-year Germany’s PPI fell 2.9% in February, versus a 3.4% decline in January.

Canada’s core inflation rate unexpectedly rose last month on higher costs for automobile insurance and accommodation during the Vancouver Winter Olympics. The increase will pressure the central bank to raise interest rates and drive the value of the Loonie higher. The Canadian economy is accelerating out of last year’s recession with retail sales also rising more than expected. Recent manufacturing reports also indicated rapid economic growth.

The speed of the rebound may change how fast Governor Mark Carney decides to raise the benchmark interest rate from its current record low level of 0.25%. He had pledged to keep the interest rate in place through June unless the inflationary outlook changed. The banks next interest rate decision is scheduled for April 20th.

On a monthly basis, core consumer prices rose 0.7%, the fastest since November 2008 and overall inflation was up 0.4%. Economists had predicted the monthly rates would be 0.3% for both total and core inflation. Retail sales rose 0.7% in January, as consumers stocked up on home improvement supplies before a federal tax credit expired. Wholesale sales rose at the fastest pace in three years in January and factory sales gained four times what economists had predicted.

During the middle of last week in the forex online market the Loonie traded within one cent parity with its American counterpart before dropping back 0.23% on Thursday as crude oil prices, the country's largest export fell. On Friday the Loonie opened at USD $1.0137 and fell back a further 0.31% to close trading at USD $1.0169.

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