The Canadian dollar finished the week marginally lower against its US namesake, hurt by falling crude oil prices as well as a late-week surge in the US dollar. Loonie traders showed little appetite to make a renewed run towards significant lows set just two weeks ago, and FX Options data suggests many are betting on and hedging against further USDCAD advances. The week ahead may prove pivotal for both the US and Canadian currencies with key employment data due for both North American neighbors.

Fairly mixed Canadian economic data leaves similarly muted forecasts for key events in the week ahead, and the USDCAD could see noteworthy moves on upcoming economic data. Top event risk includes a monthly Gross Domestic Product report on Monday, while Friday sees the release of highly market-moving Employment change figures and similarly significant Ivey Purchasing Managers Index results. The Canadian Dollar previously enjoyed important support from robust growth and interest rate expectations. Yet benign inflation data and a more moderate stance from the Bank of Canada removed a key source of Canadian Dollar demand against the low-yielding USD. Though admittedly unlikely, it will be important to watch whether growth and labor data will be enough to provide a meaningful fundamental boost and tilt expectations in the Canadian Dollar’s favor.

We will otherwise watch for any particularly noteworthy surprises from US economic data and, perhaps more importantly, significant moves in highly-correlated Crude Oil prices. The USDCAD correlation to NYMEX WTI Crude Oil contract prices trades quite close to record-highs, and this is perhaps especially relevant given recent geopolitical tensions in the Middle East. Crude oil prices bounced notably on worries that riots in Egypt could spell trouble in an already-tense region and destabilize a critical zone of crude oil production. We don’t care to speculate on what could happen in the geopolitical realm, but it may be an important theme to watch in the week ahead. The Canadian Dollar’s reluctance to rally towards recent highs suggests momentum is waning, and the USDCAD may be at risk of considerable topside correction on a broader US Dollar recovery.

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