Canadian dollar exchange rate forecasts: CAD finds little favour, event risk is heightened this week
- Written by: Gary Howes
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Canadian dollar exchange rates (CAD) are today to be found on a firmer footing as a longer-term sell-off is reversed. The forecast does however not favour the CAD and event-risk will be elevated this week.
Despite a corrective move in favour of the CAD being witnessed in global FX today, the forecast is firmly one that does not favour the Canadian currency.
However, with CFTC data confirming markets are fully against the Canadian currency market players should always be aware that the possibility of sharp and hefty reversals always remain a possibility.
One potential trigger to such a reversal could well be this week's Bank of Canada decision.
"For the week as a whole, we are expecting a 1.085-1.105 range to hold (USD-CAD), with the main risk to that range stemming from the fact that the CAD could initially sell off more than we expect at Wednesday’s BoC. We expect stretched valuations in the CAD to offer opportunities for profit taking in CAD shorts this week, but we expect those opportunities to be in place largely at lower levels in the CAD, relative to current spot prices," says Stephen Gallo at BMO Capital Markets.
CAD dollar exchange rates today
As mentioned, today has offered the CAD relief:
- The pound sterling to Canadian dollar exchange rate (GBP/CAD): 0.12 pct lower at 1.7990.
- The euro to Canadian dollar exchange rate (GBP/CAD): 0.07 pct higher at 1.4857.
- The US dollar to Canadian dollar exchange rate (USD/CAD): 0.09 pct lower at 1.0954.
Note: Our CAD quotes are taken from the wholesale spot markets. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.
Canadian dollar forecasts
The pound has pushed levels back beyond 1.80, however this week, there is enough opportunity for the CAD to regain some ground. A slew of Canadian data is due in the days ahead, including retail sales and the all important inflation data.
The BoC will also be announcing their interest rate decision, and after dropping their tightening bias on the back of lower inflation, there will be a lot of focus on the central bank’s outlook for inflation.
"With UK employment data expected to support the pound further, we doubt the CAD can make a significant recovery, keeping GBP/CAD levels elevated," forecasts Sasha Nugent at Caxton FX.
Shaun Osborne at TD Securities reckons the Bank of Canada will not alter their stance markedly:
"There has been a fair amount of speculation building in the market that the BoC meeting this week will see Governor Poloz shift the policy bias a little further towards easing from the current neutral stance. We rather think there is no rush here and the no change in rates and no change in the basic, neutral position is the more likely outcome, however.
"Policy makers will want to drip feed the changing bias into the market in order to avoid a pre-emptive rebound in the CAD—there is only so far that policy can shift, after all."
Stephen Gallo at BMO Capital has the following warning on the Canadian dollar for the week ahead:
"The possibility is for a lower kneejerk reaction in the CAD following the BoC on Wednesday, ahead of key data on Thursday and Friday. Our economists are expecting a better-than-consensus reading on core retail sales, and CPI prints which are in-line with the market consensus.
"This should generally support the existence of those aforementioned opportunities for profit taking in CAD shorts. Broadly speaking: 1.080-1.085 should contain offers in USDCAD in the event of an unexpectedly ‘hawkish’ BoC, whilst opportunities to take profit on CAD shorts should begin in the 1.100-1.105 range (or possibly higher) this week.
"Tomorrow’s second-tier CAD data for November may be a trading opportunity in USDCAD, but we would only expect to see decent speculative flow if the data are much weaker-than-expected (USDCAD higher). Any CAD buying on profit taking in the event of better data tomorrow should at most be rather marginal."
