The Canadian dollar has been disappointing for the last two sessions. After failing to stay below 1.25, USD/CAD is now trading above 1.2540. The Bank of Canada's Business Outlook Survey results were below expectations. After rising to 2.81 in the last quarter, the latest quarter fell to 0.86. We have previously suggested that Canada's economic growth was set to slow from very high growth rates earlier this year. The currency is also suffering given the rising risk from NAFTA negotiations. Given Trump's 'America First' policies, the US is looking to increase US content in auto manufacturing to 50% (from current 62.5% 'North American' requirements). Given the risk that the White House could simply walk away from the deal, the loonie is likely to be weighed down by political uncertainty.
USD/CAD is now trading just above 1.2540. The euro is down slightly against the Canadian dollar this morning, with EUR/CAD above 1.4750. Lastly, the pound is also up against the Canadian dollar, with GBP/CAD trading above 1.6660.
This is pretty light week for economic data from Canada. Monday's Bank of Canada’s Business Outlook Survey showed much lower growth expectations (0.86 current vs. 2.81 previous). 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.