The Canadian dollar fell sharply in the last 24 hours. Bank of Canada Governor Poloz suggested that "the Canadian economy is carrying untapped potential that could prolong the expansion without causing inflation pressures." His comments suggested that the BoC was more likely to remain on hold after hiking rates three times since last year. As markets had priced in more rate hikes this year, both the Canadian dollar and Canadian bond yields fell following his announcement. The Canadian dollar is the worst performing major currency this year, and is down almost 3% against the US dollar in 2018. We downgraded our short-term outlook on the Canadian dollar in late February. Since March 6, we have also downgraded our medium-term outlook on the Canadian dollar to bearish.
Between tough NAFTA negotiations, weakness in crude oil prices, a slowing economy and (now) a weaker outlook for rate hikes, the Canadian dollar is likely to keep weakening. Given significant government and consumer debt, Canada is also one of the world's most indebted countries. A recent report from the Bank for International Settlements suggested that the country faces a significant risk from a banking crisis in the future. There are no significant developments relating to NAFTA talks. Our short-term and medium-term outlook remains bearish.
The USD/CAD exchange rate is currently above 1.2940. The euro is down against the Canadian dollar, with EUR/CAD currently above 1.60. The pound is flat against the Canadian dollar, with GBP/CAD trading above 1.8060.
This is a very light week for Canadian economic data. BoC Governor Poloz suggested a more dovish outlook in a speech earlier this week. Tomorrow, we'll see ADP employment changes. On Friday, we'll see Canadian portfolio investments in foreign securities and foreign portfolio investments in Canadian securities. This week's data releases do not tend to have a meaningful impact on the currency. Last week, changes in employment were lower than expectations.
As the Canadian dollar weakens, 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.