The Canadian dollar is mostly flat today, but is selling off against the Japanese yen. The Canadian dollar has been very weak lately, thanks to both a rebound in the US dollar, tough NAFTA negotiations and transportation issues affecting the country's crude oil industry. Looking at the US dollar, the buck surged yesterday after FOMC minutes were released. The US Federal Reserve upgraded its outlook for growth and inflation, which may accelerate the pace of rate hikes in the US this year. Looking at the Canadian crude oil sector, the benchmark price for crude oil from the country (Western Canadian Select) is trading at a wide discount relative to WTI following issues with the Keystone pipeline. Based on a recent report from Bloomberg, Western Canadian Select is trading at a $28.50/barrel discount relative to the US benchmark (WTI). The discount is expected to cost 0.75% of Canadian GDP this year, and is weighing on the currency. As Canada has failed to build pipelines between Alberta and British Columbia (or its east coast), the country remains reliant on exports to the United States. Turning to NAFTA headlines, Mexico is claiming that Mexican labor standards are no obstacle to NAFTA talks. Canadian labor unions have repeatedly stated that NAFTA should be scrapped if Mexican labor conditions and wages do not improve. Our short-term outlook on the Canadian dollar is neutral, while our medium-term outlook remains bullish.
The USD/CAD exchange rate is currently above 1.2690. The euro is flat against the Canadian dollar, with EUR/CAD currently above 1.5590. The pound is down slightly against the Canadian dollar, with GBP/CAD trading above 1.7640.
This is a fairly light week for Canadian economic data. Later today, we’ll see retail sales. Friday is the key day, and we’ll get the January consumer price index and core CPI. Last week, manufacturing sales missed estimates by a wide margin.
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.