The Canadian dollar continues to fall, thanks to recent weakness in oil prices, a rising US dollar and weak Canadian economic data. 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 crude oil, prices fell sharply yesterday although WTI remains above $50 for now. Previously in September, 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 was able to climb above 1.25 yesterday, and is currently trading above 1.2520. The Canadian dollar remains flat against the euro, as both currencies weaken at the same pace. EUR/CAD is currently trading near 1.4680. Finally, the currency is also flat against the pound, with GBP/CAD above 1.660.
This week's economic data includes manufacturing PMI data (released yesterday), merchandise trade balances on Thursday and unemployment data on Friday. Manufacturing PMIs released yesterday were stronger than the previous release (55 vs. 54.6 prior). 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.