The Canadian dollar dominated when it came to the majors last week, as USD/CAD broke out of a large triangle formation toward 1.20. The currency is likely to remain volatile throughout the coming week as some major economic releases will hit the wires.
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Canadian Dollar Prevails Ahead of Upcoming BoC Rate Decision [/B]
[B]Fundamental Outlook for Canadian Dollar: [/B][B]Bearish[/B]
- Canadian business and credit conditions improved slightly in Q1, but indexes remain close to worst on record.
- Canadian CPI cooled on an annualized basis, but core measures reflect persistent price pressures.
- Check out our USD/CAD outlook from a technical and fundamental perspective.
The Canadian dollar dominated when it came to the majors last week, as USD/CAD broke out of a large triangle formation toward 1.20. The currency is likely to remain volatile throughout the coming week as some major economic releases will hit the wires. On Tuesday at 9:00 ET the Bank of Canada is expected to leave rates unchanged at 0.50 percent, according to a Bloomberg News poll of economists. However, as of Friday, Credit Suisse overnight index swaps were pricing in a 50 percent chance of a 25 basis point reduction to 0.25 percent. As it stands, economic conditions continued to deteriorate throughout Q1, as Ivey PMI has held below 50 for the fifth straight month in March, signaling a contraction in business activity, while the unemployment rate climbed to a seven-year high of 8.0 percent. Furthermore, business and credit conditions improved slightly, but still signaled historically negative levels, while the latest CPI figures show that headline price growth has slowed more than anticipated, but core CPI has held at a robust 2.0 percent annualized pace.
All told, the BoC is likely to leave rates unchanged, but the Canadian dollar’s reaction may hinge more upon the policy bias contained within the Bank’s concurrent press release. Any indications that they may leave rates unchanged at their next meeting could send the Canadian dollar spiraling higher, while remarks suggesting that they are open to cutting rates later in the year or pursuing quantitative easing could send the currency lower.
On Thursday, the release of Canadian retail sales could prove to be disappointing, as spending is anticipated to have fallen during February at a rate of 0.3 percent. Indeed, with unemployment rates rising and business activity slowing, continued declines in retail sales are almost sure to come. If the indicator falls in line with or more than expectations, the Canadian dollar could pull back further, especially if the Bank of Canada suggests on April 21 that they may be open to making monetary policy more accommodative. However, if retail sales actually rise, the Canadian dollar could surge in response.