Fundamental Forecast for CAD: Bearish
- Canada’s Dollar Dragged Down As WTI Crude Oil Trades Near 2-Mo. Low On Oversupply Dampen The Appeal Of The Loonie.
- Royal Bank of Canada, the nation’s largest lender and the most accurate forecaster of the CAD advises clients to fund their Carry Trade with CAD, not EUR until BoC acts.
- For up-to-date and real-time analysis on the CAD, Oil and market reactions to economic factors currently ‘in the air,’ DailyFX on Demand can help
The Canadian Dollar witnessed a strong drop in the second half of the week thanks in large part to a massive build in DoE and API Crude Oil Inventories this week. Market expectations were set right below ~800k for inventories, and Oil bulls were displeased to see a build of 4.22mn barrels and were then quick to sell Oil. The Canadian Dollar followed suit and ended the week as one of the poorest performers to the US Dollar alongside the Norwegian Krone, also heavily tied to the Oil market and Oil’s market price.
Domestic data last week did little to support USDCAD this week even though Monday & Thursday’s housing data came out in line with expectations. Next week will turn focus to more important news events on Friday. The CAD Consumer Price Index is expected by economists to fetch a reading of 1.0%, and the Bank Canada Consumer Price Core YoY is expected to bring 2.1%. Once again, unless the market is surprised by a large CPI beat (unlikely due to Oil, but housing could help), we expect CAD to be driven more from oil prices and external factors.
On the charts this week, USDCAD matched the late August high of ~1.3450, and now eyes are set on 1.3452, the YTD high. This trend could continue as Canada's largest bank by market cap states FX traders should fund their carry trades through the Canadian Dollar as the subdued growth outlook for Canada will likely keep the Bank of Canada on hold for rates shortly. If banks take note, this would have the Canadian Dollar replacing the Euro as the carry trade funder, and likely add to the pressure on the Oil-driven currency to continue to see the largest capital outflow of G10FX.
The forecast remains bearish on the Canadian Dollar moving forward.
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