The Canadian dollar strengthened sharply yesterday and continues to gain this morning. The currency benefited from both higher-than-expected retail sales figures as well as better-than-expected headline inflation. As growth and inflation-related data is better than expected, the odds of a future rate hike are increasing as a result. Today, markets will be closely watching October GDP growth figures. Expectations are high, with the consensus estimate at 0.2% for month-over-month GDP growth. Following recent CAD strength, we expect to upgrade our short-term outlook to neutral shortly. Our medium-term outlook remains bearish.
The USD/CAD exchange rate is currently above 1.2720. The euro is down against the Canadian dollar. EUR/CAD is currently above 1.5070. Lastly, the pound is down against the Canadian dollar, with GBP/CAD trading above 1.7010.
This week’s economic data and events relating to the Canadian dollar include inflation and GDP growth. Retail sales beat expectations by a wide margin (1.5% vs. 0.3% expected) while November headline CPI (2.1% vs. 2.0% expected) and core CPI (1.3%) were also strong. Later today, we’ll see October GDP growth. Last week, the Canadian dollar rallied after Poloz suggested that the economy had made “tremendous” progress.
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.