The Canadian dollar has been falling for the past few days, thanks to both weak domestic data and the rise of the US dollar. Last Friday, economic growth figures missed expectations, with month-over-month growth for July coming in at 0%, vs. expectations of 0.1%. Looking at the US, Fed voting member Harker recently commented that another interest rate hike was likely in December, helping the US dollar rally. Previously, the loonie fell following comments from Bank of Canada Governor Poloz suggesting that future interest rate hikes are less certain in the future.
USD/CAD is now trading above 1.25 this morning, having started the day closer to 1.2470. The Canadian dollar is flat against the euro, as both currencies weaken at the same pace. EUR/CAD is currently trading near 1.4690. Finally, the currency is also flat against the pound, with GBP/CAD close to 1.6680.
This week's economic data includes manufacturing PMI data today, merchandise trade balances on Thursday and unemployment data on Friday. Unemployment data will be watched closely as the market debates the odds of future interest rate hikes by the Bank of Canada.
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.