The Canadian dollar is a bit stronger this morning as USD/CAD appears to be running out of steam. The pair has strengthened beyond oversold conditions and is susceptible to a pullback in the short-term. Given that yesterday was a public holiday in both Canada and the US, there are limited news headlines that have influenced the currency. Last Friday, the currency strengthened against the US dollar on lower-than-expected unemployment and strong Ivey PMI survey data. We upgraded the short-term outlook on the loonie to neutral yesterday.
USD/CAD is currently trading below 1.2520. The euro is making small gains relative to the Canadian dollar this morning, with EUR/CAD currently trading above 1.470. Finally, the pound is flat against CAD, with GBP/CAD just above 1.64950.
This is a 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.