The Canadian dollar is strengthening against all major currencies except the Australian dollar today. The loonie is currently the strongest against the US dollar and the Japanese yen. Yesterday, the Canadian dollar registered a second day of significant gains versus the US dollar. USD/CAD fell below 1.28 and continues to fall today. While earlier moves in the currency were the result of the Iran deal, the latest move was the result of weakness in the US dollar. Following recent weakness, USD is no longer looking overbought.
Turning to recent NAFTA developments, U.S. House Speaker Paul Ryan has set a deadline of May 17 (next Thursday) to be notified of a NAFTA deal. According to Ryan "We have to have the paper — not just an agreement, we have to have the paper — from USTR by May 17 for us to vote on it this year, in December, in the lame duck [session]." The three NAFTA parties have been meeting in Washington since Monday in order to strike a deal. According to Mexican Economy Minister Ildefonso Guajardo, "I think we will be finding out through the day and tomorrow ... if we really have what it takes to be able to land these things in the short run."
House Speaker Ryan remains pessimistic regarding a potential deal, given the significant number of unresolved issues. Canada's Foreign Minister Chrystia Freeland is however more optimistic. She said that the three sides had made a lot of progress since Monday. Following recent strength, we will upgrade our short-term outlook to bullish, and our medium-term outlook on the Canadian dollar to neutral.
The USD/CAD exchange rate is currently above 1.2740. The euro is down against the Canadian dollar, with EUR/CAD currently above 1.520. The pound is flat against the Canadian dollar, with GBP/CAD trading above 1.7260.
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. Housing starts for April (214k vs. 220k expected) were below expectations. The new housing price index for March (2.4%) met expectations. Later today, 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 makes gains, we are now neutral 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.