The Canadian dollar continues to weaken today after falling yesterday. Looking at the currency against its major global peers, CAD is the weakest against the US dollar and the euro. Given that the Canadian dollar is a commodity currency, the loonie is highly correlated to commodity prices as a result. As global risk sentiment falls, the US dollar is strengthening while riskier assets such as crude oil are falling. Following recent weakness in the currency, we downgraded our medium-term outlook in the Canadian dollar to neutral earlier this week. If current trends continue, we expect to downgrade our outlook to bearish. As we have written before, the performance of the Canadian dollar has been fairly disappointing in 2018. Turning to the latest NAFTA news, steel tariffs are a new source of friction. Mexico is looking to avoid Trump's push for a 24% steel tariff on imported steel from all countries. As Trump has indicated that Canada may be exempt from the tariffs, Mexico is seeking a similar exemption. Canada’s chief negotiator (Steve Verheul) suggested that talks have resulted in “reasonably good progress so far”.
The USD/CAD exchange rate is currently above 1.2850. The euro is up slightly against the Canadian dollar, with EUR/CAD currently above 1.5650. The pound is flat against the Canadian dollar, with GBP/CAD trading above 1.7660.
This is a fairly light week for Canadian economic data. The raw material price index (7.7% vs. 6.2% prior) was higher than the previous print. Producer prices (2% vs. 2.3% prior) fell versus figures last month. Later today, we'll see the current account and Markit manufacturing PMIs. On Friday, the most important day, we'll see December GDP figures. The GDP numbers will be watched closely following disappointing December retail sales numbers last week.