The Canadian dollar is weaker this morning, after strengthening last Friday. Despite our earlier article, explaining that USD/CAD was likely to fall below 1.25, recent loonie weakness suggests that USD/CAD is unlikely to stay below 1.25 for long. Last week, Trump indicated his willingness to consider a bilateral Canada-US trade deal, raising hopes in spite of difficult NAFTA negotiations. In US news, hopes for tax reforms are rising as more Republicans appear to be willing to support the deal. This is helping the US dollar rebound while the loonie weakens in relative terms.
USD/CAD is now trading just above 1.2490. Despite overall euro weakness, the euro is up against the loonie today. EUR/CAD is currently trading above 1.4720. Lastly, the pound is also up against the Canadian dollar, with GBP/CAD trading above 1.66.
This is pretty light week for economic data from Canada. On Monday we’ll get the Bank of Canada’s Business Outlook Survey. On Friday, we’ll retail sales numbers and consumer price index figures. Given that inflation remains below the BoC’s target, inflation expectations remain muted. Last week, housing data mostly disappointed, with new build permits and new house prices below expectations.
After a small rebound in the second week of October, we are now neutral on the medium-term outlook for the Canadian dollar. As recent news from Canada has been limited, the currency has done well primarily thanks to relative weakness in the US dollar. Earlier, the loonie was weakening on lower interest rate hike expectations following comments from the Bank of Canada. While the loonie was in overbought conditions in September, 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.