The Canadian dollar, also known as the loonie, is Canada's national currency. It is currently the sixth most traded global currency, according to a recent survey by the Bank for International Settlements. The Canadian dollar is involved in 2.5% of all foreign exchange trading. As a commodity currency, the value of the currency is heavily influenced by commodities such as crude oil.
The Canadian dollar is currently selling off against all major currencies except the Japanese yen. Yesterday, the loonie ended the day sharply lower against the US dollar. For the third session in a row, trading volumes in Canadian dollar futures accelerated relative to the previous session. The combination of recent weakness and rising volumes suggests that traders are selling the loonie with conviction. Today's USD/CAD trading range is 1.2770 - 1.3120.
Following a significant slowdown in year-over-year inflation, the Canadian dollar sold off sharply earlier today. Looking at the figures, headline inflation in September slowed to 2.2%, versus 2.8% in August. Consensus estimates had also called for significantly higher inflation in September. Ahead of next week's Bank of Canada interest rate decision, the significant slowdown in inflation (from its recent peak at 3% two months ago) is a serious concern for Canadian dollar traders. Beyond the recent slowdown, inflation is likely to keep slowing thanks to steepening base effects. In other words, rising inflation at this point last year makes a continued acceleration in year-over-year inflation mathematically more challenging. All else held equal, falling inflation lowers rate hike expectations, in turn weighing on the Canadian dollar.
While September retail sales figures (also announced earlier today) beat the previous monthly figures, note that August retail sales numbers were revised lower. As consumption is a significant proportion of Canada's overall economy, retail sales have a significant impact on the outlook for growth. As retail sales growth has been decelerating in rate-of-change terms this year, it follows that the outlook for Canadian growth is weakening accordingly. Our outlook on the Canadian dollar remains bearish.
The USD/CAD exchange rate is currently above 1.3110. The euro is up against the Canadian dollar, with EUR/CAD currently above 1.510. The pound is up against the Canadian dollar, with GBP/CAD trading above 1.710. CAD/JPY is flat, and currently trading above 85.70.
|October 15||New Motor Vehicle Sales AUG||185.2K||179.6K|
|October 15||BoC Business Outlook Survey|
|October 16||Foreign Securities Purchases AUG||C$2.82B||C$15.29B|
|October 16||Foreign Securities Purchases by Canadians AUG||C$-0.19B||C$13.06B|
|October 17||Manufacturing Sales MoM AUG||-0.4%||0.9%|
|October 18||ADP Employment Change SEP||28.8K||42.7K|
|October 19||Core Inflation Rate YoY SEP||1.5%||1.7%|
|October 19||Inflation Rate YoY SEP||2.2%||2.8%|
|October 19||Retail Sales YoY AUG||3.6%||3.5%|
The Canadian dollar is the best performing major ‘risk on’ currency this year. Against the US dollar, the loonie is down by 4.5% this year. This beats all other major ‘risk on’ currencies including the euro (-5.3%), British pound (-5.9%) and the Australian dollar (-6.9%). In our last commentary, we argued that the outlook for the Canadian dollar was neutral thanks to rising crude oil prices and …
While the outlook for the Canadian dollar looked dire just a few months ago, the currency appears to have recently turned a corner. After looking oversold in late March, the currency managed to strengthen thanks to a rebound in crude oil prices. Two weeks later, the Canadian dollar received more good news as the Trump administration pushed to conclude NAFTA talks at a faster pace. In more recent …
Looking at last week’s Commitment of Traders report, the only notable changes were relating to net positions in the Swiss franc, Canadian dollar and British pound. Changes in positioning were fairly limited for the US dollar, euro, gold and crude oil. Crude oil positions, based on 3-year trailing averages and net speculator positions as a proportion of total open interest, remains at a bullish ex…