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 weakening today, as the global stock market rebound runs out of steam. In general, riskier assets such as stocks and commodities are doing poorly today, which is driving down the Canadian dollar. CAD is currently selling off against safe haven currencies such as the US dollar and the Japanese yen. The loonie is flat against the euro and the British pound. The US dollar is strengthening today, alongside most global government bonds. Safe haven assets such as the US dollar and government bonds typically rally when risk sentiment is weak. Turning to NAFTA discussions, top US and Mexican officials are cautiously optimistic that NAFTA can be renegotiated. The seventh round of negotiations will take place in Mexico City starting on February 25. As Mexican presidential elections are set to take place in July, there is a likelihood that talks will have to be postponed until later this year. Our short-term outlook on the Canadian dollar is neutral, while our medium-term outlook remains bullish.
The USD/CAD exchange rate is currently above 1.2540. The euro is flat against the Canadian dollar, with EUR/CAD currently above 1.5590. The pound is also flat against the Canadian dollar, with GBP/CAD trading above 1.7570.
This is a very light week for economic data from Canada. Manufacturing sales figures missed expectations by a significant degree (-0.3% vs. 0.2% expected). Last week, trade balances and changes in employment were below expectations.
As the Canadian dollar runs out of steam, we are downgrading the currency to neutral 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.
As the Canadian dollar strengthens, we are upgrading the currency to bullish 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.
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'.
When will the Canadian dollar rebound? We take a closer look at the Canadian dollar future forecast 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.
Expectations for today’s Bank of Canada rate decision are low – consensus expects rates to be maintained at 1%. Thus the real driver for the currency will be in the Bank’s statement. Last October, the BoC said that the “Governing Council will be cautious in making future adjustments in the policy rate”. Markets focused on the word “cautious”, believing that the outlook for further hikes in 2017 w…
CAD forecast: forex investors have reason to be cautious about the Canadian dollar. Changes in crude oil and real estate prices indicate a coming reversal of fortune.