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 mixed today. The loonie is currently selling off against the US dollar, while strengthening against the euro and the British pound. Yesterday, the Canadian dollar continued to weaken against the US dollar, and is currently trading near 12-month lows. Today's USD/CAD trading range is 1.3070 - 1.3330. 

As the outlook for Canada darkens, the odds of a Bank of Canada rate hike are falling. This can be seen in falling bond yields for short-term Canadian government bonds. While 2-year US Treasury bond yields continue to rise (and are currently yielding 2.56%), equivalent bond yields in Canada are falling and are currently yielding just 1.85%. Beyond the differential in bond yields (0.71%), yields are also moving in the opposite direction. This is a particularly bearish sign, and suggests that the Canadian dollar is likely to keep weakening. 

Beyond bearish signals from the bond market, the Canadian dollar remains under pressure thanks to decelerating growth, ongoing trade tensions and weakness in crude oil prices. More recently, the Canadian real estate market is also showing signs of jitters, with sales volumes falling to a nine year low according to recent figures from the Canadian Real Estate Association. With plenty of reasons for the currency to keep weakening, our outlook on the loonie remains bearish. Note that there are no major updates relating to NAFTA today.

The USD/CAD exchange rate is currently above 1.3320. The euro is down against the Canadian dollar, with EUR/CAD currently above 1.5350. The pound is down slightly against the Canadian dollar, with GBP/CAD trading above 1.7460. CAD/JPY is flat, and currently trading above 82.80. 

Date Event Actual Previous
June 21 ADP Employment Change MAY 30.2K
June 21 Wholesale Sales MoM APR 1.1%
June 22 Inflation Rate YoY MAY 2.2%
June 22 Core Inflation Rate YoY MAY 1.5%
June 22 Retail Sales YoY APR 4.1%
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 

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