Trading in the Canadian dollar has been fairly wild today, although the loonie is currently higher (particularly against the US dollar). CAD is trading flat relative to other global currencies such as the euro and the British pound. While the Canadian dollar began the day fairly weak, the currency strengthened after higher-than-expected US inflation figures. While accelerating US inflation is usually a positive for the US dollar (as higher inflation raises rate hike expectations), markets overlooked the headline figures as month-over-month core inflation was fairly weak. Combined with falling commodity prices, the outlook for inflation is therefore weak. As inflation fears recede, global risk appetite is improving. This explains why the Canadian dollar is rising alongside US equities. As a high-beta currency, the loonie tends to strengthen when risk sentiment improves. Turning to NAFTA, the US is touting progress on talks with Mexico, but has withheld comments regarding Canada. Frictions between the US and Canada are rising due to trade discussions. Last week, President Trump said that Canada has treated the US "very unfairly" over lumber. Our short-term outlook is neutral, while our medium-term outlook remains bullish.
The USD/CAD exchange rate is currently above 1.2520. The euro is up slightly against the Canadian dollar, with EUR/CAD currently above 1.5570. The pound is up against the Canadian dollar, with GBP/CAD trading above 1.7510.
This is a very light week for economic data from Canada. On Friday, we'll see manufacturing sales figures. Last week, trade balances and changes in employment were below expectations.
As the Canadian dollar runs out of steam, we are downgrading 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 a normal range.
As the Canadian dollar strengthens, 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.