Yesterday started out as a tough day for the Canadian dollar. The currency weakened for most of the day following news reports suggesting that NAFTA talks are likely to continue into 2018. The negotiations have taken their toll on both the Canadian dollar and the Mexican peso as the American negotiating team has repeatedly threatened to walk out of the deal. We covered our broader thoughts on the NAFTA discussions in a recent article. Towards the end of the day, the Canadian dollar managed to rally after USD/CAD came close to 1.26. This morning, the exchange rate remains above 1.25, and is currently trading around 1.2520.
The euro is down again versus the Canadian dollar this morning, with EUR/CAD below 1.470. Lastly, the pound is also down against the Canadian dollar, with GBP/CAD trading above 1.6490.
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.