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. 

Short term outlook
Bearish
Medium term outlook
Neutral

Daily update

The Canadian dollar is currently mixed. CAD is weakening against the US dollar and the British pound, while making gains versus the Japanese yen and the Australian dollar. Yesterday, the loonie managed to end the day slightly higher against the US dollar. Unfortunately, the currency has given up yesterday's gains thanks to the ongoing US dollar rebound. 

Turning to recent news, Reuters is reporting that a Mexican business leader has claimed that a new NAFTA deal could be reached in 10 days. Moises Kalach made the statements yesterday. He is the current head of the CCE business lobby, which represents Mexico's private sector in the NAFTA negotiations. With NAFTA looking more and more like a done deal, news headlines relating to NAFTA are having a limited impact on the Canadian dollar. Instead, the currency is trading primarily as a function of recent US dollar strength. As global growth decelerates, rising US bond yields are making the US dollar a more attractive investment destination relative to the loonie. The Canadian dollar is selling off as a result.  

While we upgraded our outlook on the Canadian dollar to neutral earlier this week, recent weakness means that the broader trend is looking bearish again. Later today, we will downgrade our short-term outlook to bearish. We expect to downgrade our medium-term outlook back to bearish later this week or next week. 

The USD/CAD exchange rate is currently above 1.2850. The euro is flat against the Canadian dollar, with EUR/CAD currently above 1.5690. The pound is up slightly against the Canadian dollar, with GBP/CAD trading above 1.7940.

This is a very light week for economic data relating to the Canadian dollar, as no significant data releases are scheduled for this week. Last week, the Bank of Canada maintained its existing interest rates, while suggesting that accommodative policies were set to continue.

Updated 

Canadian dollar Outlook

Short term outlook
Bearish

As the Canadian dollar loses steam, we are now bearish on the currency in the short-term. Looking at various technical indicators on a daily chart of the Canadian dollar, the currency is now trading within a normal range.  

Medium term outlook
Neutral

As the Canadian dollar trades sideways, we are now neutral on the currency in the medium-term. Looking at a weekly chart, the currency is trading within normal conditions. This is based on various technical indicators on the Canadian dollar currency index. 

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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