The Canadian dollar is trading sideways today, having strengthened for the past few days. There has been limited news that has recently influenced the loonie. 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%. We recently wrote about the weak outlook for Canadian growth.
USD/CAD is currently trading slightly below 1.2480, having fallen below the critical 1.25 level earlier in the week. The euro has strengthened against the Canadian dollar in the past few days, with EUR/CAD currently trading above 1.4680. Finally, the pound remains flat against CAD, with GBP/CAD just above 1.65.
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.
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.