The Canadian dollar is bouncing back this morning, after entering oversold conditions earlier this week. Looking at USD/CAD, the exchange rate made its latest high slightly above 1.25, and has since fallen below this level. Earlier, the loonie was selling off thanks to weak economic data and falling crude oil prices. Last Friday, economic growth figures missed expectations, with month-over-month growth for July coming in at 0%, vs. expectations of 0.1%.
The Canadian dollar has traded in a tight range against the euro for most of this week. EUR/CAD is currently trading near 1.4660. The currency is also mostly flat against the pound this morning, with GBP/CAD below 1.6540.
This week's economic data includes manufacturing PMI data (released Monday), merchandise trade balances on Thursday and unemployment data on Friday. Manufacturing PMIs released on Monday 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 pulling back from oversold conditions on October 3, the outlook for the Canadian dollar is now neutral. Earlier, the currency was selling off due to the Bank of Canada's hesitation in committing to future interest rate hikes. Looking at various technical indicators on a daily chart of the Canadian dollar, the currency remains oversold.
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.