The Canadian dollar is mixed today. The loonie is selling off against the US dollar, the British pound and the Japanese yen, while making gains versus the euro and the Australian dollar. Last week, the Canadian dollar weakened as the US dollar strengthened. Thanks to accelerating US bond yields, the US dollar is becoming a relatively more attractive investment destination versus the Canadian dollar.
Turning to recent news, Bank of Canada Governor Stephen Poloz said that a recent increase in Canadian inflation does not automatically warrant a rate hike. As the BoC targets a 1-3% range, interest rates can temporarily rise above the Bank's 2% target. Following guidance at the Bank of Canada's most recent meeting, Governor Poloz is adopting an increasingly neutral tone. While last year's rate hikes were part of an interest rate normalization plan, this year Poloz is signaling that rates are set to remain low for the foreseeable future.
Turning to NAFTA news, Mexican Central Bank Governor Alejandro Diaz de Leon told CNBC that the Bank expects NAFTA negotiations to be successful. Last week, Mexico's Economy Minister said that negotiators had made "a lot of progress". As the US softens its stance with regards to North American auto content, a deal is looking increasingly likely. Our short-term outlook on the Canadian dollar is bullish, while our medium-term outlook remains neutral.
The USD/CAD exchange rate is currently above 1.2770. The euro is down slightly against the Canadian dollar, with EUR/CAD currently above 1.5660. The pound is up slightly against the Canadian dollar, with GBP/CAD trading above 1.7890.
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.
As the Canadian dollar strengthens, we are now bullish 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.
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.