Canadian Dollar Weekly Outlook for 21 - 25 Match 2022
Last week, the CAD gained ground versus the US dollar and, perhaps more critically closed well away from the 1.2750 level, around which spot prices have tended to congregate since the end of January. Last week's Canadian data points—high CPI, substantial rises in home prices, and solid Retail Sales—confirmed the domestic economy's strength at the start of the year. Several economists now predict GDP growth of far above 5% in the first quarter, bolstering the case for stronger monetary policy in Canada next month.
Last week, the CAD benefited from strong commodity prices as well as lower market volatility. However, it appears that markets have become overconfident in terms of the geopolitical threats to the global economy. The conflict in Ukraine is far from done, and the negotiating positions have not shifted enough to imply a rapid resolution. The possibility of escalation remains high as the Russian push stalls. With little internal data to focus on this week, the CAD will continue to be influenced by external factors such as market volatility and commodity prices. In the United States, there is a light data schedule this week, but a large number of Fed speakers are scheduled, which could help measure the depth of support among FOMC members for Bullard's more aggressive Fed policy position following last week's Fed rate hike.
The week ahead
While most analysts are wary about the CAD's near-term prospects and risks, spot is extremely close to fair value prediction. As we head into Q2, a mix of positive underlying fundamentals and tighter Bank of Canada policy point to a firmer loonie. While increased volatility in the next few weeks may limit the CAD's ability for large gains, upside risks for the USD also appear to be limited given current market conditions.
This week’s trading range is between 1.2450 – 1.2700
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