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Fundamental Forecast for CAD: Bullish
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Canadian Dollar Strength Is Not Slowing Down
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Canadian Dollar Positioning Warns That The USD/CAD May Fall Further
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Canadian Dollar Finds Little Standing In Its Way With WTI Crude Oil Pushing Higher
A perfect storm has developed for Canadian Dollar bears. In addition to Oil having risen ~70% from the February 11 low and the US Dollar falling to levels not seen since June, the Canadian economy continues to outperform rivals in terms of economic new releases relative to economists’ expectations. These developments brought about the Canadian dollar trading at its strongest level in 10 months to against the US Dollar below 1.2500 on Friday morning in New York.
The Recent Economic Data Trend in Canada
Bank of Canada Governor Stephen Poloz made waves this week as he praised PM Trudeau and made clear and cogent arguments against negative interest rates. The Citi Economic Surprise Index on the Canadian Economy recently touched its highest levels since June at a time where other economies like the United States are consistently seeing economic prints fall short of economists expectations.
On Friday, Canadian GDP dropped 0.1*%YoY in February. Consumer consumption was an encouraging sign despite the contraction, which mainly came from manufacturing and drops in mining, quarrying, and the energy sector. Economic prints of this show the wisdom of the Bank of Canada of cutting when they did in 2015 and holding as they have in 2016.
Economic Data on Deck for Canada This Week
The two major fundamental headlines upcoming this week is the Canadian Employment report and the Trade Balance Report for March. The employment report will align with the US Non-Farm payroll, but Canada may grab an unusual amount of attention as traders look for a comparison or favorable narrative to help explain last month’s gain of 40,600 jobs.
Trade Balance is always an important number as it helps to see how trade flows are employed in the economy. Specifically, with the resumption of activity in Emerging Markets and Canada’s role as a supplier of natural resources to Emerging Markets, a boost in the Trade Balance could continue to show that little is slowing the economy down. On the other hand, the 14.5% gain in the Canadian Dollar relative to the US Dollar might be blamed if exports take a dip relative to recent readings as Emerging Markets continue to chug along.
Global Macro Influences on the Canadian Dollar
As mentioned earlier, there are three components that have led to a Canadian Dollar surge since the end of January in Oil, US Dollar, and Canadian Economic Data. However, if you would like to boil these factors down to one market to watch, the closing of the gap in 2Y sovereign yields between the United States and Canada is great.