The Canadian dollar is slightly higher against all major currencies except the US dollar today. CAD is the currently the strongest against the Japanese yen and the British pound. Looking at the loonie against the US dollar, the currency ended the day slightly weaker against the dollar yesterday (despite rising crude oil prices).
While Canada's economy remains supported by high crude oil prices and strong US growth (the country's largest trading partner), the currency is suffering as the outlook for Canada's economy weakens. Beyond differences in the growth outlook, the loonie is also weighed down by Canadian monetary policy. As the Bank of Canada turns cautious on future rate hikes, Canadian bond yields offer comparatively lower yields relative to US counterparts. This is because the US Federal Reserve is expected to continue raising rates. All in all, the Canadian dollar has been no match against the US dollar in recent history.
Turning to recent NAFTA news, the US has decided to extend the deadline for steel and aluminum tariffs on Canada and Mexico to June 1. In other trade news, the US has also proposed a four-year phase-in for new auto content rules. The US is pushing for a 75% North American auto content requirement, with new rules requiring substantial work at wages of $16/hour or higher. According to Reuters, the minimum wage rules would apply for 40% of light-duty passenger vehicles and 45% for pickup trucks. Mexican auto workers earn between $3-$6/hour. Reactions from the auto industry and from Mexican trade officials were mixed. 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 down against the Canadian dollar, with EUR/CAD currently above 1.5470. The pound is down against the Canadian dollar, with GBP/CAD trading above 1.7640.
Looking at this week’s economic calendar for the Canadian dollar, we’ll see Canadian GDP growth figures. Industrial prices (0.8% vs. 0.7% expected) and raw material prices for March (2.1% vs. 0.6% expected) were both ahead of expectations. Later today, 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.