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  • Weekly Commentaries

The CAD Has Fallen behind most of its Main Currency Rivals


  • The CAD rose to the mid-1.33s last Thursday thanks to the USD's decline and a rise in risk appetite, but a USD recovery on Friday reduced CAD gains to only 0.15% for the week, one of the worst performances in the major currency sector. As a result, the CAD has fallen behind most of its main currency rivals significantly and has lost momentum on major crosses. The notion that the cycle of monetary policy tightening is about to peak is being applied to the CAD in a way that unfairly compares it to the USD. Last year, the CAD benefited from the USD's tailwinds, but this year, given the maturity of North American rate cycle, it seems likely that the CAD will underperform on the crosses.

The Week ahead

  • This week, there will be a lot of data to sort through. The Bank of Canada's Business Outlook Survey for Q4 will provide information on price and growth predictions, and it is one of today's highlights for Canadian data. On Tuesday, the December CPI report is released, and on Friday, retail sales figures. The headline CPI report for December is predicted to be weak, with a monthly decline of 0.6% and an annual increase of 6.3%. Core prices are anticipated to be quite stable and drop very modestly from November. Markets are still factoring in the possibility of the BoC tightening at the month's conclusion based on firm data from late last year and unexpectedly strong employment growth in December. The Martin Luther King Jr. holiday falls on Monday in the US. A lot of housing data will be released throughout the week, with some of the highlights being the Jan NY and Philly Fed surveys (released on Tuesday and Thursday, respectively), the Dec Retail Sales report (released on Tuesday), and the PPI and IP reports (released on Wednesday). On Wednesday, the Fed's Beige book will be published.

USD/CAD Likely to Remain Rangebound

  • Since Dec., the CAD has had a tendency to trade at a discount to the projected fair value. Early January price action somewhat reversed that underperformance, but spot gains have left the USD over fair value, which should restrict the potential for further increases. Models predict some downside risk for spot within a 1.3255/1.3575 range for the upcoming week. Given the weak USD tone, the downtrend seems fair, but neither range extreme may be reached without some large data surprises or greater action in the stock market. Observe the USD/CAD trends.

This Week’s Technical Range

  • Support is located at 1.3270 while resistance is located at 1.3500.
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