The Canadian dollar strengthened yesterday and continues to gain this morning. Bank of Canada Governor Stephen Poloz boosted rate hike hopes in a speech last night. He stated that the economy was in a good position after making "tremendous" progress last year. More specifically he stated that the economy “is close to reaching its full potential. We are very encouraged by this, and we are growing increasingly confident that the economy will need less monetary stimulus over time.” Poloz also acknowledged that current monetary policy remains "quite stimulative". As slack in the economy falls, the BoC believes that there are upside risks to inflation. Following this speech, the odds of a January rate hike have increased to 35% according to Reuters. Our short-term and medium-term outlook on the Canadian dollar remains bearish.
The USD/CAD exchange rate is currently above 1.2740. The euro is down against the Canadian dollar. EUR/CAD is currently above 1.5020. Lastly, the pound is up against the Canadian dollar, with GBP/CAD trading above 1.7130.
This is a very light week for economic data and events relating to the Canadian dollar. Data including new housing price index figures later today and manufacturing shipments on Friday are unlikely to move the currency. Instead, CAD is more likely to take cues from movements in Canadian dollar bond markets and crude oil prices. Last week, the loonie sold off after the Bank of Canada disappointed markets.
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.