The Canadian dollar continues to rebound, particularly against the US dollar. We earlier wrote that USD/CAD was likely to fall below 1.25 as the US dollar bull market runs out of steam. Looking at news, ongoing NAFTA negotiations appear to be troubled as Trump has threatened to cancel the agreement unilaterally. However, Trump has also indicated his willingness to consider a bilateral Canada-US deal, raising hopes in Canada. Canadian Prime Minister Trudeau appears to be more positive, insisting that talks with Trump are going well.
USD/CAD is now trading just below 1.2460, as the pair pulls back from overbought conditions. EUR/CAD continues to fall, and is currently trading below 1.4730. Lastly, the pound remains most flat against the loonie, with GBP/CAD trading above 1.66.
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 Thursday, new house prices were below expectations (0.1% vs. 0.3% 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 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.