The Canadian economy probably took a substantial hit of around 10% annualized in the first quarter of 2020 due to the coronavirus – the lockdown and falling oil prices. A squeeze closer to 15% would hurt the loonie while nearing a loss of only 5% would boost it, FXStreet’s analyst Yohay Elam reports.

Key quotes

“The US economy squeezed by 4.8% annualized and economists expect the Canadian one to have tumbled by around 10% – around double. The reason for the greater hit stems from the crash in crude oil.” 

“Any figure around 10% will likely trigger choppy trading in USD/CAD but leave no long-lasting mark. Traders will likely return to end-of-month adjustments.” 

“The loonie will likely come under pressure if the downfall in output is closer to that of the eurozone, which suffered a quarterly decline of 3.8% – around 16% annualized. Such an outcome would show that the shuttering of the economy had a more profound effect on the economy.”

“Single-digit annualized contraction – especially closer to America's ~5% fall, would already boost the loonie. It would provide confidence that the Canadian economy endured the worst and is ready to recover. It would also show that the nation's furlough scheme and other measures are boosting the economy.”