Canadian dollar - CAD

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. 

Outlook
Bearish

Daily update

The Canadian dollar is currently mixed. The loonie is selling off against the euro and the Australian dollar, while strengthening against other major currencies. Yesterday, the loonie was the weakest major currency, ending the day lower against its peers. Despite a small rally in commodity prices and a softer US dollar, the Canadian dollar was out of favor, ending lower against the US dollar for the second consecutive day. Today's trading range for USD/CAD is 1.3080 - 1.3390.

Growing uncertainty regarding NAFTA negotiations is starting to weigh on the Canadian dollar. Yesterday, US trade representative Robert Lighthizer said he hopes there will be a breakthrough in NAFTA negotiations in the next few days. However, US President Donald Trump told Lighthizer that he is in no rush for a resolution, and is ready to walk away from talks if necessary. Trump said that "We’re either going to do a fair NAFTA for us or we’re not going to do NAFTA at all.” He added that “If you can’t make the right deal, don’t make it.” Trump has been vocal about NAFTA negotiations recently, casting doubt on whether or not the US, Mexico and Canada can reach an agreement.

Later today we'll see Canadian inflation numbers. Traders will be looking for signs that inflation is continuing to strengthen after last month's 2.5% year-over-year increase showed the biggest pick-up in inflation since 2012. Rising inflation is a major factor in the Bank of Canada's monetary policy, and continued strength increases the likelihood of future rate hikes. Yesterday we downgraded our outlook for the Canadian dollar to bearish.

The USD/CAD exchange rate is currently above 1.3130. The euro is up slightly against the Canadian dollar, with EUR/CAD currently above 1.4980. The pound is down slightly against the Canadian dollar, with GBP/CAD trading above 1.6710. CAD/JPY is flat, and currently trading above 84.30. 

Date Event Actual Previous
August 15 New Motor Vehicle Sales JUN 204.4K 220.3K
August 16 ADP Employment Change JUL 11.6K -10.5K
August 16 Manufacturing Sales MoM JUN 1.1% 1.4%
August 17 Core Inflation Rate YoY JUL 1.3%
August 17 Inflation Rate YoY JUL 2.5%
August 17 Foreign Securities Purchases JUN C$2.18B
August 17 Foreign Securities Purchases by Canadians JUN C$5.69B
Updated 

Canadian dollar Outlook

Outlook
Bearish

Updated 

Background

Policy: The Bank of Canada (BoC) surprised markets twice in 2017 by hiking interest rates and signaling further rate hikes. Despite historically low rates of inflation, the BoC signaled that inflation would ultimately reach its target of 2% in 2018. This has unsurprisingly led to a substantial strengthening in the Canadian dollar. In more recent times, the BoC continues to signal that more rate hikes are warranted. On the fiscal front, the Canadian government has substantially increased spending since 2016, and this has continued to support the currency via faster economic growth.  

Sentiment: Speculators have flipped from being short the Canadian dollar in June to bullish following the BoC's change in tone. Positioning in the currency remains bullish and at elevated levels relative to 1 year and 3 year averages. Despite hitting bullish extremes, so far the Canadian dollar has managed to stay strong.  

Economic data: While economic growth in Canada was very strong in 2017, recent GDP growth data suggests that the rate of growth is now cooling. Unlike growth, inflation continues to disappoint and remains below the BoC's 2% target. After initially choosing to look past the issue of low inflation, the BoE is now signaling it is more 'data dependent'. 

Analysis

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 …

Published 

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…

Published 

When will the Canadian dollar rebound? We take a closer look at the Canadian dollar and what the latest Commitments of Traders report says about the currency. Bank of Canada remains cautious - impacting trader optimism, but better data has us rethinking an earlier prediction.

Published 

Economic calendar