USD/CAD, or US dollar to Canadian dollar, is a major currency pair and is heavily traded in foreign exchange markets. Given that crude oil and refined petroleum products make up a significant portion of Canadian exports, USD/CAD tends to track global commodity prices. Similar to other commodity currency pairs, USD/CAD tends to depreciate during economic booms (CAD appreciates) while strengthening (CAD depreciates) during downturns. Looking at recent history, USD/CAD appreciated significantly during the 2008 financial crisis and following an emerging markets downturn in 2016.
The US dollar is slightly lower today against major currencies today. The buck is currently the weakest against the euro and the Australian dollar. Yesterday, the dollar surged alongside rising US Treasury yields. Since mid-April, the dollar has been strengthening as US bond yields rise in anticipation of future rate hikes.
Looking at US Treasuries, 10-year bonds have finally managed to close above 3%. The bonds are currently yielding 3.031%. While the yield curve has been steepening in recent weeks, this is out of sync with the longer term trend. In the short-term, higher crude oil prices are driving inflation expectations. In turn, this is driving bond yields and the US dollar higher. In the longer-term, the yield curve is likely to resume flattening once the crude oil bull market runs out of steam or if US growth decelerates. As both growth and inflation are simultaneously accelerating today, expectations are rising for more rate hikes (helping the dollar). Our short-term outlook on the US dollar is bullish, while our medium-term outlook remains neutral.
USD/JPY is down slightly today and currently trading above 109.30. EUR/USD is up slightly and trading above 1.2170. The pound is up slightly, and GBP/USD is currently above 1.3940.
Looking at economic data and events from the US this week, traders will be paying close attention to upcoming Q1 2018 GDP growth figures. The Chicago Fed national activity index for March (0.1 vs. 0.27 expected) was below expectations. Existing home sales for March (5.6m vs. 5.5m expected), Markit services PMIs (54.4 vs. 54 expected), and manufacturing PMIs (56.5 vs. 55 expected) were ahead of expectations. S&P/Case-Shiller home prices for February (6.8% vs. 6.3% expected) and March MoM new home sales (4% vs 1.9% expected) were both ahead of expectations. Later today, we’ll see weekly initial jobless claims figures as well as durable goods for March. On Friday, the most important day, we’ll see Q1 GDP growth and Q1 personal consumption expenditures. We’ll also see the Michigan consumer sentiment index for April. Last week, the Fed’s Beige Book suggested that growth continues to accelerate at a moderate pace.
The Canadian dollar is currently mixed. CAD is weakening against the US dollar and the British pound, while making gains versus the Japanese yen and the Australian dollar. Yesterday, the loonie managed to end the day slightly higher against the US dollar. Unfortunately, the currency has given up yesterday's gains thanks to the ongoing US dollar rebound.
Turning to recent news, Reuters is reporting that a Mexican business leader has claimed that a new NAFTA deal could be reached in 10 days. Moises Kalach made the statements yesterday. He is the current head of the CCE business lobby, which represents Mexico's private sector in the NAFTA negotiations. With NAFTA looking more and more like a done deal, news headlines relating to NAFTA are having a limited impact on the Canadian dollar. Instead, the currency is trading primarily as a function of recent US dollar strength. As global growth decelerates, rising US bond yields are making the US dollar a more attractive investment destination relative to the loonie. The Canadian dollar is selling off as a result.
While we upgraded our outlook on the Canadian dollar to neutral earlier this week, recent weakness means that the broader trend is looking bearish again. Later today, we will downgrade our short-term outlook to bearish. We expect to downgrade our medium-term outlook back to bearish later this week or next week.
The USD/CAD exchange rate is currently above 1.2850. The euro is flat against the Canadian dollar, with EUR/CAD currently above 1.5690. The pound is up slightly against the Canadian dollar, with GBP/CAD trading above 1.7940.
This is a very light week for economic data relating to the Canadian dollar, as no significant data releases are scheduled for this week. Last week, the Bank of Canada maintained its existing interest rates, while suggesting that accommodative policies were set to continue.
As the pair makes gains, we are now bullish on USD/CAD. Note that USD/CAD is currently trading within normal conditions in the short-term. This is based on technical indicators on a daily chart.
As the pair runs out of steam, we are now neutral on USD/CAD. The pair is trading under normal conditions. This is based on technical indicators on a weekly chart.
In our previous take on the US dollar in early February, we wrote that the currency was set to remain weak. At the time, ex-US growth was accelerating, while speculator sentiment was only mildly bearish. While dollar bulls have argued that rate hikes should help the currency, we wrote that expectations for monetary tightening were rising around the world, limiting the impact from the Fed’s action…
The US dollar currency index, a measure of USD against six major peers, declined by 9.9% in 2017. Last month, the currency index continued declining and fell by another 3.3%. Given the speed of the recent decline, the US dollar started looking oversold according to technical indicators around mid-January. While we warned that the currency was looking oversold in several recent editions of our US …
Looking at this week’s Commitments of Traders Report, bullish extremes continue in long crude oil, the euro and the British pound. Net long positions have also grown this week for the two currencies and the commodity. The purpose of this report is to track how the consensus is positioned across various currencies and commodities. When net long positions become crowded in either direction, we fla…
While the outlook for the Canadian dollar looked dire just a few months ago, the currency appears to have recently turned a corner. After looking oversold in late March, the currency managed to strengthen thanks to a rebound in crude oil prices. Two weeks later, the Canadian dollar received more good news as the Trump administration pushed to conclude NAFTA talks at a faster pace. In more recent …
Looking at last week’s Commitment of Traders report, the only notable changes were relating to net positions in the Swiss franc, Canadian dollar and British pound. Changes in positioning were fairly limited for the US dollar, euro, gold and crude oil. Crude oil positions, based on 3-year trailing averages and net speculator positions as a proportion of total open interest, remains at a bullish ex…
When will the Canadian dollar rebound? We take a closer look at the Canadian dollar and what the latest Commitments of Traders report says about the currency. Bank of Canada remains cautious - impacting trader optimism, but better data has us rethinking an earlier prediction.