The Canadian dollar fell sharply yesterday and continues to fall this morning. The currency began falling after the Bank of Canada's statement maintained the current policy status quo. While many had hoped for a hawkish tilt and another rate hike in January, the content of the Bank's statement suggested otherwise. While the currency had been supported by rate hike-related hopes, that driver is now working against it. Instead, the currency is likely to remain weak thanks to slowing growth, weak inflation, NAFTA-related fears and weaker crude oil prices. Our long-term outlook on the currency remains bearish.
The USD/CAD exchange rate is currently above 1.2820. The euro is up against the Canadian dollar. EUR/CAD is currently above 1.510. Lastly, the pound is up against the Canadian dollar, with GBP/CAD trading above 1.7140.
Given an upcoming BoC rate decision, this is an important week for Canadian economic data and events. The trade balance was better than expected (-1.47b vs. -2.7b expected). The BoC maintained rates as expected while signaling a continuation of existing monetary policies. Later today, 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 strengthens on better GDP data, we are upgrading the currency to neutral in the short-term. Looking at various technical indicators on a daily chart of the Canadian dollar, the currency is now trading within normal conditions.
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.