The Canadian dollar is giving up some of its gains this morning, particularly against the US dollar. The US dollar is stronger against most currencies this morning. In recent weeks, the loonie has been supported by US dollar weakness and strong crude oil prices. The currency is also being supported by hopes for another 0.25% rate hike. The next Bank of Canada meeting is scheduled for January 17. Based on short-term bond yields, markets are pricing in a 50% chance of a rate hike. The next Bank of Canada rate decision and meeting is scheduled for March. Given monetary policy expectations, markets will be closely watching this week's unemployment figures. Our medium-term outlook on the currency remains bearish.
The USD/CAD exchange rate is currently above 1.2520. The euro is down against the Canadian dollar, with EUR/CAD currently above 1.5070. The pound is also up against the Canadian dollar, with GBP/CAD trading above 1.70.
This week's economic data releases relating to the currency includes unemployment data and trade balances. Markit manufacturing PMIs were higher than the previous print (54.7 vs. 54.4 prior). Friday is the big day, and we'll see unemployment, changes in employment as well as trade balances. We'll also see Ivey PMIs for December on that day. Prior to the holidays, October GDP growth data missed expectations by a wide margin.
As the Canadian dollar rallies on US dollar weakness on stronger crude oil prices, 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.