The Canadian dollar is down sharply, and is selling off against all major currencies today. CAD is currently the weakest against the Japanese yen and the US dollar. Yesterday, the currency was slightly lower against the US dollar during Asian and European trading hours. After President Trump scheduled his Iran nuclear deal announcement for 2PM EST today (four days ahead of the May 12 deadline), the Canadian dollar weakened further.
As described in today's crude oil daily update, recent trading in the commodity fits the "buy the rumor, sell the news" pattern. As a result, the commodity is selling off ahead of Trump's announcement on the Iran deal, pushing down the Canadian dollar. While the loonie has outperformed other risk-sensitive currencies such as the Australian dollar and the euro in recent history, the currency looks due for a short-term pullback. In particular, we have flagged EUR/CAD as well as AUD/CAD for looking oversold (i.e. CAD overbought) In recent history, the Canadian dollar has weakened against both currencies.
Turning to recent developments, NAFTA talks resumed yesterday in Washington. According to a Reuters story, sources are increasingly pessimistic on the outcome because of a stalemate around the biggest issues. Given Trump's push to bring back automotive jobs from lower-cost Mexico to the United States, North American auto content rules remain as the most contentious problem. According to Mexican Economy Minister Ildefonso Guajardo, if no deal is reached, the three sides will be operating a "zombie" NAFTA - one that is not dead, nor modernized. Uncertainty relating to the NAFTA agreement continues to weight on business investment in Canada and Mexico. Our short-term and medium-term outlook on the Canadian dollar is bearish.
The USD/CAD exchange rate is currently above 1.2970. The euro is up against the Canadian dollar, with EUR/CAD currently above 1.5430. The pound is up against the Canadian dollar, with GBP/CAD trading above 1.7520.
This is a relatively light week for the Canadian dollar economic calendar. The Bank of Canada’s Lane said that growth remains "synchronized", while economies will have to cope with lower monetary stimulus in the future. Later today, we’ll see housing starts for April. On Thursday, we’ll see the new housing price index for March and see the BoC’s Review (its quarterly publication). On Friday, the most important day, we’ll see changes in employment for April and hear a speech by the BoC’s Wilkins. Last week, GDP growth in February was ahead of expectations.
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.