The Canadian dollar was very weak yesterday following the Bank of Canada's decision to hold interest rates. While the outcome itself was widely expected, markets were spooked by the Bank's about-face on raising rates later this year and in 2018. The Bank of Canada vowed to be "cautious" regarding future rate hikes, given the uncertainty caused by NAFTA. We pointed out the risks from NAFTA negotiations is an earlier thought piece. The Bank also pointed out that the inflation outlook was weak, especially "following the recent appreciation of the Canadian dollar". Given the current outlook, the BoC does not expect inflation to hit its target until mid-2018.
The USD/CAD exchange rate is currently just below 1.28. The euro is also up versus the Canadian dollar this morning, with EUR/CAD above 1.5120. Lastly, the pound is also up against the Canadian dollar, with GBP/CAD trading above 1.6950.
Yesterday, the Bank of Canada maintained interest rates. The currency fell sharply following the Bank's statement which suggested a "cautious" outlook for future rate hikes given risks from the NAFTA negotiations and a weak inflation outlook.
After falling sharply on October 20, we are downgrading the Canadian dollar to bearish. The currency has been selling off following weak retail sales and inflation data. Looking at various technical indicators on a daily chart of the Canadian dollar, the currency is trading just above oversold conditions.
After weakening in the latter half of October, we are now bearish on the medium-term outlook for the Canadian dollar. The currency is selling off on weak economic data and lower interest rate hike expectations. Earlier, the currency was supported after the Bank of Canada raised interest rates twice this year and suggested that more may be in store. 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.