Canadian Dollar Fundamental Forecast: Neutral
- Canadian Dollar[1] traded mixed against the US Dollar[2]
- The USD/CAD[3] may focus on stock-steering event risk
- Watch for: GDP, Fed, IMF, earnings and US stimulus
The Canadian Dollar traded mixed against the US Dollar this past week, but its broader path of appreciation since late March 2020 remains intact. CAD received a boost after Bank of Canada’s Governor Tiff Macklem noted that the nation ‘will not need as much QE’ over time under their base case. His comments crossed the wires following the BoC’s expected rate hold at 0.25%.
Monetary policy expectations are often a key fundamental driver for currencies. One way of visualizing this is through government bond yield spreads. USD[4]/CAD appears to not have a particularly strong correlation with US and Canadian bond yield spreads. Rather, it remains heavily inversed with market risk appetite – see chart below. As such, the pair will likely continue to follow the general trajectory of equities in the near-term.
Canadian GDP is on tap for November. It will offer both an update on how domestic growth is behaving while also giving an idea of how the global economic recovery from the coronavirus is faring. Strong Canadian retail sales this past week for the same time period seem to offer a rosy preview for GDP. After all, consumption is the largest segment of growth.
While the data may stir short-term CAD volatility, the broader trend will likely remain glued to risk appetite. For that, it is a very busy week for market-moving events. The Federal Reserve interest rate announcement, World Economic Forum, IMF World Economic Outlook update, US GDP and earnings season are among key updates investors will be watching.
With such a crowded
