The Canadian dollar is mostly flat this morning. Last Friday, the currency strengthened against the US dollar on lower-than-expected unemployment and strong Ivey PMI survey data. Earlier, the loonie was selling off thanks to weak economic data and falling crude oil prices. Two weeks ago, 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. While our medium-term outlook on the Canadian dollar remains bearish, the currency currently looks oversold and is susceptible to a rebound in the short-term.
USD/CAD is currently trading above 1.2540. The euro is making gains relative to the Canadian dollar this morning, with EUR/CAD currently trading above 1.470. Finally, the pound has been strengthening against CAD, with GBP/CAD just above 1.6450.
This is fairly light week for economic data from Canada. On Monday, domestic markets will be shut for Canadian Thanksgiving. On Tuesday, we’ll see housing starts figures. Given Canada’s ongoing real estate boom, housing debt and new construction figures are watched closely by investors. Last week saw good unemployment data, with unemployment rates lower than expected (6.2% vs. 6.3% expected).
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.