CAD Daily Updates

12 January 2018

The Canadian dollar is mostly weaker this morning, but is trading sideways against the US dollar. The currency continues to be heavily influenced by news reports that the US is considering scrapping NAFTA altogether. In a recent interview with the Wall Street Journal, Trump claimed that Mexico can remain in NAFTA with higher payments. The higher payments can be used to fund Trump's border wall. Given Canada's close economic relationship with the US, the elimination of NAFTA would be fairly disruptive for its economy. This being said, we continue to expect that the US will ultimately form a bilateral trade deal with Canada. We explained our reasons in detail in a previous commentary on the subject. The relative weakness in the currency is somewhat surprising given the ongoing crude oil bull market and recent weakness in the US dollar. Without the overhang from trade negotiations, the current economic backdrop is ideal for the Canadian dollar. Our short-term trending indicator is currently bullish, while our medium-term outlook is neutral.   

The USD/CAD exchange rate is currently above 1.2510. The euro is up against the Canadian dollar, with EUR/CAD currently above 1.5170. The pound is up against the Canadian dollar, with GBP/CAD trading above 1.7040.

This is a very light week for economic data releases relating to the currency. The BoC's business outlook survey suggested improving business conditions on all metrics except future sales (+8 vs +19 previously). The report helps the Bank's case for a rate hike next week. Housing starts beat expectations (217k vs. 212.5k expected). Building permits were much lower than estimates (-7.7% vs. -0.3% expected). New housing price index numbers (0.1% vs. 0.2% expected) were lower than estimates. Last week, changes in employment were significantly ahead of expectations.

Updated 
Short term outlook
Bullish

As the Canadian dollar rallies on rate hike hopes, we are upgrading the currency to bullish in the short-term. Looking at various technical indicators on a daily chart of the Canadian dollar, the currency is now trading within a normal range.  

Medium term outlook
Neutral

As the Canadian dollar strengthens on higher crude oil prices and rate hike hopes, we are upgrading the currency to bullish 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. 

Updated