The Canadian dollar enjoyed a rebound yesterday, as the US dollar bull market took a breather. The loonie strengthened yesterday despite crude oil prices falling. Previously, the currency fell following comments from Bank of Canada Governor Poloz suggesting that future interest rate hikes are less certain in the future.
USD/CAD has given up some of Wednesday's strong gains, is currently trading below 1.2440. After falling earlier in the week, EUR/CAD is back to where it was trading on Monday morning. The currency pair is currently trading above 1.4650. The Canadian dollar has also recently strengthened against the pound, with GBP/CAD below 1.6660.
This is a fairly light week for economic data from Canada. Today, Statistics Canada will announce month-on-month GDP growth for July. These figures will be watched closely considering the Bank of Canada's recent skittishness with regards to future interest rate hikes.
After peaking in the first week of September, the Canadian dollar has been mostly weakening. Our outlook on the currency is thus bearish in the short-term. More recently, the loonie has suffered due to the Bank of Canada suggesting caution when assessing future interest rate hikes. The market had priced in several interest rate hikes for later this year and next year. Looking at various technical indicators on a daily chart of the Canadian dollar, the currency is neither overbought nor oversold today.
The loonie has weakened every week in the last three weeks of September. While the currency initially sold off without much of a catalyst, the bout has accelerated in recent weeks thanks to lower interest rate hike expectations following comments from the Bank of Canada. Thus we are downgrading the currency to bearish. While the loonie was in overbought conditions earlier in the month (as per our previous warning), the currency has since re-entered normal trading conditions. This is based on various technical indicators on a weekly chart of the Canadian dollar currency index.