The Canadian dollar had another weak session yesterday and continues to sell off this morning. The currency is especially weak against the US dollar, which is rising thanks to a recent vote in the House of Representatives. Now that the House has passed the Senate's budget resolution, Trump's tax reforms are much closer to becoming reality. Looking at news, BoC Governor Poloz was interviewed by CBC yesterday. In stark contrast to his earlier rhetoric, he said that a "lot of things that have to come together" before another rate hike. As the Bank of Canada looks set to downshift into neutral, the Canadian dollar is weakening as a result. As we wrote yesterday, the short-term outlook for the Canadian dollar remains bleak.
The USD/CAD exchange rate is currently above 1.2870. The euro was down sharply against the Canadian yesterday, with EUR/CAD above 1.4970. Lastly, the pound is down slightly against the Canadian dollar, with GBP/CAD trading below 1.6840.
Earlier this week, 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 lower rate hike expectations, we are downgrading the Canadian dollar to bearish. Looking at various technical indicators on a daily chart of the Canadian dollar, the currency is now looking oversold in the short-term.
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. 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.