The Canadian dollar is weaker against all major currencies except the Australian dollar and the British pound today. CAD is currently the weakest against the US dollar. Last week, the currency sold off as the US dollar strengthened alongside rising inflation expectations. As the US dollar is starting to look overbought, we expect some relief for the Canadian dollar in the short-term. In the longer-term, the loonie remains in a bearish trend.
Turning to recent NAFTA news, there were few notable developments over the weekend. At this point, many expect an "agreement in principle" to be announced on May 1 (tomorrow), delaying the negotiation process into 2019. If no agreement in principle is reached on NAFTA, US tariffs targeting Canadian steel exports will also go into effect on the same day. While recent progress has been a positive factor, the talks are unlikely to conclude ahead of Mexican presidential elections and US mid-term elections this year. As NAFTA-related risks rise, the Canadian dollar is more likely to remain weak.
Looking at other drivers of the currency, crude oil prices are currently selling off as we wrote in our crude oil daily update. So far, the sell-off has been accompanied by relatively limited trading volumes, suggesting that crude oil bears are lacking in conviction. Our short-term and medium-term outlook on the Canadian remains bearish.
The USD/CAD exchange rate is currently above 1.2850. The euro is up slightly against the Canadian dollar, with EUR/CAD currently above 1.5550. The pound is flat against the Canadian dollar, with GBP/CAD trading above 1.7650.
Looking at this week’s economic calendar for the Canadian dollar, we’ll see Canadian GDP growth figures. Later today, we’ll see industrial prices and raw material prices for March. Tomorrow, we’ll see February GDP growth and Markit manufacturing PMIs for April. We’ll also hear a speech from BoC Governor Poloz. On Thursday, we’ll see the international merchandise trade balance for March. On Friday, we’ll see Ivey PMIs for April. Last week, NAFTA talks continued to progress as the US softened its stance on auto content rules.
As the Canadian dollar weakens, we are now bearish on the currency 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.