After strengthening yesterday, the Canadian dollar is mostly flat this morning. The currency has been helped by rising crude oil prices, thanks to falling inventories and limited US supplies. Yesterday's EIA data showed sharply lower crude oil inventories, helping WTI rise above $52. While ongoing NAFTA discussions are unlikely to help the currency in the short-term, a positive resolution from the discussions would help strengthen the loonie. We covered our broader thoughts on the NAFTA discussions in a recent article.
USD/CAD has now fallen back below 1.25, the exchange rate is currently just below 1.2460. The euro is up versus the Canadian dollar this morning, with EUR/CAD above 1.4710. Lastly, the pound is down against the Canadian dollar, with GBP/CAD trading b below 1.6440.
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.