Fundamental Forecast for Canadian Dollar: Bearish

- Canadian Employment Report tops forecasts, Canadian Dollar bounces
- Bank of Canada raises interest rates and does not rule out further hikes

The Canadian Dollar finished the week marginally higher as the Bank of Canada raised interest rates and domestic employment numbers beat expectations. Yet a Friday reversal suggested traders are thus far unwilling to push the Loonie to fresh monthly highs against its US namesake. BoC officials matched consensus forecasts in raising their benchmark interest rates a further 25 basis points to 1.00 percent, and the bank struck a relatively hawkish tone in showing few signs it would pause in its tightening cycle. Whether this will be enough to push the Canadian Dollar to further highs is questionable, however; the USDCAD correlation to Crude Oil remains near record-highs and Canadian Dollar strength will almost certain depend on the trajectory of commodity prices.

Canadian economic event risk will be minimal in the week ahead, and traders are more likely to focus on movements in broader financial markets than individual pieces of fundamental data. A marginal exception may be Wednesday’s Manufacturing Shipments report. Though said news release has not historically forced noteworthy volatility in CAD pairs, a Canadian Trade Balance deficit at record highs means negative surprises may elicit CAD declines. An otherwise fairly empty calendar leaves the USDCAD at the whims of Crude Oil prices and a similarly slow week of US economic event risk.


The Canadian Dollar’s inability to hit fresh highs amidst an upward revision to interest rate expectations raises doubts on future gains. A key factor in determining the USDCAD’s next step will undoubtedly be the direction of Crude Oil prices, and the NYMEX WTI Contract’s close near monthly highs leaves momentum in the Canadian Dollar’s favor. Yet we will likely need to see a USDCAD break below key support near 1.0250 to instill confidence in the downtrend. According to our Senior Strategist, however, the USDCAD may have recently bottomed and is set to go higher through the medium term.

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