After rising sharply on good economic data last Friday, the Canadian dollar is slightly weaker this morning. New employment (79.5k vs. 10k expected) and GDP growth (1.7% vs. 1.6% expected) were far better than expected. This helped the Canadian dollar rally, particularly against the US dollar. This morning, the currency is selling off following the US Senate's successful tax vote. So far, the jump in USD/CAD has been limited as the House and Senate have yet to reconcile their respective versions of the tax bill. As the odds for tax cuts rise in the US, rising inflation expectations are strengthening the US dollar at the expense of other currencies. Our short-term and medium-term outlook on the currency remains bearish.
The USD/CAD exchange rate is currently above 1.270. The euro is down against the Canadian dollar. EUR/CAD is currently above 1.50. Lastly, the pound is flat against the Canadian dollar, with GBP/CAD trading above 1.70.
Given an upcoming BOC rate decision, this is an important week for Canadian economic data and events. On Tuesday we’ll see trade figures. On Wednesday we’ll get a rate decision and a statement. On Thursday we’ll get the Ivey Purchasing Managers Index. On Friday we’ll see housing starts. Last week, Canadian GDP figures beat expectations helping the CAD rally.
As the Canadian dollar falls on lower rate hike expectations and weaker crude oil, we are downgrading the currency to bearish in the medium-term. Looking at a weekly chart, the currency is trading within normal conditions. This is based on various technical indicators on the Canadian dollar currency index.