The Canadian dollar rose sharply yesterday against most of its peers and is currently flat today. Yesterday, we wrote that USD/CAD was likely to fall below 1.25 as the US dollar bull market runs out of steam. Today, the exchange rate has decisively fallen below 1.25, and is currently trading close to 1.2460. Earlier, the loonie had fallen into short-term oversold conditions and was due for a rebound. While recent news from Canada has been limited, the currency is benefiting from weakness in the US dollar.
The euro was down against the Canadian dollar yesterday and is flat this morning, with EUR/CAD currently trading below 1.4770. Finally, the pound is down slightly against CAD, with GBP/CAD just below 1.6480.
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). On Friday, we'll see new house pricing data. 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.