The Canadian dollar is mostly flat this morning, and USD/CAD continues to trade sideways. While the pair had fallen below 1.25 at one point yesterday, the pair has since strengthened. USD/CAD still looks overbought to us in the short-term and looks susceptible to a pullback. Despite strength in crude oil yesterday (following reports that Saudi Arabia is looking to reduce exports in November), USD/CAD has failed to close below 1.25 in recent days. In economic news, yesterday's housing starts data beat expectations, while building permits fell more than forecast.
USD/CAD is currently trading below 1.2520. The euro is making fairly big gains relative to the Canadian dollar, with EUR/CAD currently trading above 1.4790. Finally, the pound is down slightly against CAD, with GBP/CAD just above 1.6510.
This is a fairly light week for economic data from Canada. On Monday, domestic markets will be shut for Canadian Thanksgiving. Tuesday's build permits were below expectations (-5.5% vs. -1% expected), while housing starts beat expectations (217.1k vs 210k expected). 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 Canadian dollar enjoyed enjoyed a small rebound on October 6, after falling into oversold territory. As such, we are upgrading our outlook on the currency to neutral. 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.