Daily Currency Update

Last week saw the CAD underperform against a stronger USD. The stock market was mostly steady, with slight improvements in the US/Canada interest rate differentials benefiting the CAD, keeping the exchange rate near its fair market value. The upcoming week suggests a slight negative tilt in the exchange rate, expected to trade between 1.3450 and 1.3670. The bottom of this expected range appears to be particularly robust.

Canadian Dollar weekly commentary

The CAD faces significant hurdles due to the absence of a strong domestic storyline that could help it break away from the overarching trend of the USD and current market sentiment. With a sluggish economy, unfavorable yield differences, and generally weak commodity markets, the CAD continues to struggle to find its footing. However, we anticipate an uptick in economic growth trends and expect the yield gaps to narrow as the Bank of Canada and the Federal Reserve begin their easing phases. While commodities have been a weak link, they might offer some immediate support for the CAD. Notably, crude oil prices ended last week on a positive note, marking a second consecutive month of gains in February, buoyed by persistent global growth and emerging signs of economic recovery in China.

The week ahead

This week presents a heightened level of event risk for Canada. The release of the February PMI data on Tuesday will provide further insights into the activity trends at the start of the year. Although Wednesday's Bank of Canada (BoC) policy announcement is not anticipated to bring major changes, the accompanying statement, Monetary Policy Report (MPR), and press conference will be closely watched for any shifts in policy direction. Recent data indicating stronger-than-expected growth and signs of a rebound in early-year activity suggest the Bank may not be in a hurry to begin easing measures. The employment data on Friday will offer additional insights into the ongoing high wage trends. In the US, key data releases are scheduled, including the February ISM on Tuesday, trade data on Thursday, and nonfarm payrolls (NFP) on Friday. These reports will contend with remarks from several Federal Reserve officials. Chair Powell's semi-annual testimony to Congress on Wednesday and Thursday is particularly important, as it will be examined for hints regarding future policy directions.

This week’s trading range

The upward trend of the USD that has been consistent since the beginning of the year continues to hold strong with solid backing. Expect the USD/CAD to trade within the range of 1.3450 to 1.3670 over the course of the week.