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Canadian Dollar at 2015 Lows as Unemployment Rate Increases

The Canadian dollar is at lows not seen since 2015, at around 1.2100 levels, as the unemployment rate has increased from 7.5% to 8.1% in April 2021.

Canadian Dollar at 1.2102 Levels Slumps to 2015 Lows

Lockdown restrictions have lowered job prospects and increased the unemployment rate in Canada, which has weakened the USD/CAD currency pair. The third wave of the coronavirus is affecting the economic activity of the economy, lowering the Canadian dollar to close at the 1.2102 level last weekend. Bank of Canada Governor Tiff Macklem hints at a rise in interest rates in 2022 and a slowing of bond purchases.

The US dollar to the Canadian dollar has to move above the 1.2140 levels to gain upside momentum.

On the downside, the 1.2044 level remains strong support, which is also the 2021 lows. The psychological level at 1.2000 is another support level that will prevent the US dollar to the Canadian dollar currency pair from moving lower.

Canadian Dollar at 2015 Lows
Canadian Dollar at 2015 Lows

The Unemployment Rate Lowers Canadian Dollar

According to reports from Statistics Canada, the Unemployment Rate in Canada has increased to 8.1% in April 2021, from 7.5% in March. The number of people searching for jobs has increased 4.9%, while temporary layoff has increased 37.6%. However, the unemployment rate has improved from the May 2020 data, which was at 13.7%.

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The employment rate has dropped from 60.3% to 59.6%. The number of young persons losing jobs in the age group between 15 and 24 years has increased.

The Employment Change has reduced from 303.1k to -207.1k. About 207,000 jobs were lost in April 2021, dropping to the January 2021 lows. The pandemic restrictions in many large provinces have affected industries. Private sector jobs have vanished, while self-employment has increased.

The Ivey Purchasing Managers Index (PMI) has also declined. The Ivey PMI reading is at 60.6, while it was previously at 72.9. Though the reading is above 50, it shows that the manufacturing sector has performed less than the forecast level.

Crude oil prices have come down, and this has made the loonie slump lower. The oil market faces strong selling pressure, putting pressure on the Canadian dollar. The Canadian dollar is commodity-linked, and changes in the commodity market hurt the Canadian currency.

Sectors Affected by Coronavirus Lockdown Restrictions

Sectors that have been worst affected by the lockdown and closures are retail trade, food and accommodation services, and information, culture, and recreation. Strict restrictions are imposed on retail stores in these regions. Indoor dining has been closed in March and April in restaurants. Indoor recreation and gathering in public places have been restricted, which has affected the industry.

The employment rate among immigrants who have migrated to Canada within five years has improved. The number of new immigrants to Canada has drastically reduced with the travel restrictions.

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The shutdown of the crude oil pipeline in the US is hindering employment. The Canadian government has issued a warning to Washington regarding plans to shut down pipeline transport of crude oil from Canada to US refineries. It will affect jobs and bring down gasoline prices say, officials.

The third wave of the pandemic in Canada has brought in fresh restrictions. The variant-driven Covid has brought down economic activity, bringing job loss in April. Job losses will continue in May also, say experts.

Only 3% of the population have been fully vaccinated. 36% of the people have received their first dose. There are almost 38 million residents, and people are expected to get vaccinated by June.

Strict health measures are introduced across the country on account of a surge in Covid-19 cases, as the third wave of the virus has set in. Ontario, Quebec, Saskatchewan, and British Columbia face strict closure restrictions.

The number of people working from home has increased.  Social distancing and wearing masks have become mandatory.

The Covid-19 cases are resurging in India, and it may dampen the demand for fuel.  The increasing number of Covid cases may disrupt the need for commodity products, say experts. Canada is dependent on crude oil exports as it is a commodity-dependent economy.

Quantitative Easing Affects Canadian Dollar

Governor Tiff Macklem has said that the QE program has helped to create jobs and increase demand. However, it has inflated the value of assets, boosting inflation. It will widen wealth inequality, says Macklem. The economic outlook has improved, and fiscal stimulus has to be reduced, says the governor.

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The government had purchased government bonds worth CAD$4 billion but now purchases are brought down to CAD$3 billion. Canada is the first country to bring down bond purchases.

The bank rate is at a record low of 0.25%, and it will continue until inflation is brought to 2%, says Macklem. Business activities have to improve to recover lost jobs for the economy to recover, he says.

Bank of Canada has signalled that interest rates may increase by the end of 2022 once the economy recovers from the pandemic.

The US dollar went lower over the weekend as the US Treasury bond yields faced a strong pullback. Though economic data in the US is strong, the US dollar has declined. Inflation in the US has jumped to 4.2%in April.

 

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