Fundamental Forecast for Canadian Dollar: Bearish

The Canadian dollar and fellow commodity bloc members were the only G10 currencies to finish lower against the downtrodden US dollar, hurt by noteworthy corrections in oil, gold, and silver prices. A similarly significant correction in Bank of Canada interest rate expectations likewise reduced the attractiveness of Canadian dollar bets. Looking to the week ahead, relatively Canadian economic calendar suggests that the USDCAD will move off of developments in the US and global commodity markets.

Considerable corrections in commodity prices and financial market risk barometers dragged the Loonie lower, and continued weakness would almost certainly produce the same result in the week ahead. The lowest-ever Core Consumer Price Index reading pushed Bank of Canada interest rate expectations considerably lower—leaving fundamental risks likewise to the downside. We previously argued that the Canadian currency may have set an important top (USDCAD bottom) on sentiment extremes, and such an outcome seems increasingly likely if commodity prices continue their recent reversal.

A Canadian Retail Sales report on Tuesday is the only piece of foreseeable economic event risk. Traders will otherwise need to keep a close eye on financial market risk barometers such as the US S&P 500 and its effects of risk-linked commodity prices. The US economic calendar sees similarly limited event risk. Yet considerable geopolitical risk out of Japan and the Middle East/North Africa region promises no shortage of volatility in the days ahead.

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