The Canadian dollar is underperforming against most major currencies. Markets are closely monitoring developments in US trade policy. During the last session, the Canadian dollar rose slightly against its US counterpart, but remained underperforming the euro, yen, and British pound.
Sean Osborne, chief foreign exchange strategist at Scotiabank, stated that the Canadian dollar continues to trade near recent levels. He explained that markets have not yet reacted to potential new directions in US economic policy.
The Canadian Dollar Facing Difficulties in Getting Off the Ground
The spot price of the Canadian dollar is stuck in a narrow trading range, reflecting the prevailing caution in the markets. Since the beginning of the week, the price has held a range between 1.3805 and 1.39, without any significant breakout.
On Thursday morning, the Canadian dollar posted limited gains but failed to break above the 1.39 resistance level. This level appears to be a barrier to further advances. The price is likely to move towards the base of the range in the coming sessions. Osborne believes that losing support at 1.38 could push the market towards testing a key correction level at 1.3745. This level represents a key support point that could demonstrate the resilience of the Canadian dollar in the face of upcoming challenges.
US Trade Policy Raises Concerns
US trade policy is increasingly influencing the course of the Canadian dollar. Washington has announced its intention to review the terms of the trade agreement with Canada and Mexico, raising concerns about potential repercussions for Canadian exports.
Moreover, statements by some US officials point to a more protectionist approach to trade relations. This trend could pressure the Canadian dollar, especially if it coincides with a global economic slowdown. Meanwhile, the Bank of Canada has shown no signs of an imminent change in monetary policy.
Markets await new economic indicators
Markets are currently focusing on upcoming Canadian economic data, particularly GDP and retail sales figures. These data are expected to provide a clearer picture of the health of the Canadian economy under current conditions.
Next week, Statistics Canada will release its February GDP report. Expectations are for a weak 0.1% growth, reflecting a slowdown in economic activity. This weak growth may reinforce expectations for longer-term interest rate cuts.
Conversely, recent US data has shown relative resilience. Durable goods orders rose more than expected, giving the US dollar a short-term boost. However, political statements remain the primary driver of market sentiment.
US Dollar Holds Temporary Strength
Despite some declines, the US dollar remains relatively strong against a basket of currencies. It is benefiting from optimism about the US economy, coupled with the lack of clear signals from the Federal Reserve regarding interest rate changes.
The CME FedWatch tool shows that markets expect interest rates to be held in May, but expectations for a rate cut in June remain. This divergence in expectations increases market volatility and makes investors more cautious. Given the close relationship between the US and Canadian economies, the Canadian dollar is directly affected by the movements of its US counterpart. If the US dollar continues to rise, the Canadian dollar may face additional pressure.
Gold and Oil Play Important Roles
Amid these tensions, attention turns to oil and gold prices. As Canada is a major oil producer, crude oil prices directly impact the Canadian dollar. The recent decline in oil prices has contributed to the weakening of the Canadian currency.
Conversely, gold continues to attract investors as a safe haven. Prices have risen in recent days, supported by inflation concerns and geopolitical tensions. This rise may offset some of the losses in commodity currencies, including the Canadian dollar.
Outlook: Cautious Anticipation
Markets are in a state of anticipation amid the absence of definitive indicators from the Bank of Canada or the US administration. Investors are awaiting any new hints regarding monetary or trade policy directions in the coming period. With the US elections approaching, fears of sudden changes in economic policy are growing. This situation is increasing market volatility and temporarily weakening investor confidence in the stability of the Canadian dollar.
At the same time, Canadian economic data remains weak, complicating the currency’s future outlook. The future performance of the Canadian dollar depends on the Canadian government’s plans to address the economic slowdown. If the government announces bold steps, the Canadian dollar’s position may improve against other currencies. However, if the political deadlock persists, the currency will remain under pressure in the coming weeks. The Canadian dollar is likely to continue trading within a range between 1.3745 and 1.39 in the near term. However, breaking this range could lead to sharp movements, especially if surprise data is released from either side.
Conclusion and Recommendations: More Vigilance
The Canadian dollar continues to suffer from weak momentum compared to major currencies like the euro and the US dollar. This is due to the lack of clear internal catalysts to push the currency upward during the current period. In this context, investors are advised to exercise caution when making decisions regarding the Canadian dollar.
It is best to avoid opening large positions before the release of important economic data from Canada or the United States. Historically, political statements have had a significant impact on the Canadian dollar’s movements. Therefore, any change in tone from officials could cause significant market volatility. Overall, the outlook for the Canadian dollar remains negative unless there are signs of real domestic improvement.
