Following very poor August GDP numbers which widely missed expectations, the Canadian dollar weakened further. Earlier, we warned that the Canadian dollar was looking oversold (especially relative to the US dollar). After yesterday's GDP numbers, the Canadian dollar is now looking even more oversold. In the short-term time frame, we expect the currency to enjoy at least a small rebound in the near future. In the longer term, the picture for the currency remains bleak. As growth decelerates, NAFTA uncertainties continue and the Bank of Canada shifts to neutral, there are few obvious catalysts for the currency. Despite rising crude oil prices, higher commodity prices have yet to strengthen the Canadian dollar.
The USD/CAD exchange rate is currently above 1.2890. The euro is flat against the Canadian dollar today, but was up sharply yesterday. EUR/CAD is currently above 1.50. Lastly, the pound is up against the Canadian dollar, with GBP/CAD trading above 1.7150.
This week has a few important events on the calendar. Monthly GDP figures for August widely missed expectations (-0.1% vs. 0.1% expected). Later today, we’ll get Markit manufacturing PMIs. Finally, on Friday we’ll get the trade balance and unemployment numbers. Last week, the BoC maintained interest rates and expressed its “caution” regarding future rate hikes.
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.