Fundamental Forecast for Canadian Dollar: Bearish

The Canadian dollar was the worst performing currency this week, falling against every other major currency, while dropping 0.97 percent against its American counterpart. It wasn’t disappointing economic data out of the world’s eleventh largest economy, but rather a shift away from risk coupled with the depreciation of crude oil prices. The Loonie is expected to see continued downside as concerns linger about the health of the global economy, and, as commodity currency and thus a risky asset, the Canadian Dollar is in the market’s crosshairs for the coming week.

Canada has two particularly important events over the next week that could drive the Loonie further down, and could even result in a potential test of parity with the U.S. Dollar. First, on Wednesday, the consumer price index from May is due, which is forecasted to show a 3.3 percent jump from the prior month, on a year-over-year basis. Price pressures in Canada remained relatively contained, in part due to a stronger Loonie over the first few months of the year, and with inflation seemingly leveling off, interest rate hike expectations could fall, especially considering data later in the week, which is forecasted to show softer growth figures from April. Canada releases growth figures not only on a quarterly basis but a monthly basis as well, and with April’s data expected to show a 0.1 percent contraction from March, the Loonie could see further pressure downwards on muted growth prospects.

Given the global shift to risk-aversion that has sent crude oil towards $90.00 over the past two weeks, and given the inextricable links between the Canadian economy – Canada is the number one exporter of oil to the United States, so growth concerns for the world’s largest economy weigh on the Loonie – a global slowdown originating in Europe and the United States could have a major impact on the Canadian Dollar. The combination of risk-aversion and softer growth and inflationary figures could lead to a terrible week ahead for the Loonie.

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