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The Loonie continues to trade sideways after the release of critical economic data

CAD - Canadian Dollar

The Loonie was performing positively in the overnight trading session after positive news from China and good performance from crude oil. However, it has erased some of its gains in a “profit taking” mode right after Canadian economic data was released at 8:30 EST this morning. Canada's Consumer Price Index was in line with expectations and the CPI increased 1.9 percent on a year-over-year basis in March (up from a 1.5 increase in February). Excluding energy, the CPI rose 2.2 percent year over year. Furthermore, the trade gap narrowed unexpectedly in February with the trade balance coming in at -2.9 billion versus -3.5 billion CAD. In general, the data in Canada came in as expected.

Technically speaking, the USD/CAD seems to continue trading within a range for the rest of this short week. However, it is crucial to notice that this range is narrowing, which means that it might break out soon (it might be more volatile over the next few days). The range has moved downwards since the week of March 4th, when it was between 1.3275 and 1.3467. This week, the range is between 1.3275 to 1.3400, due to a more positive environment in the capital markets (slightly stronger Loonie) where the FX volatility is extremely low. Therefore, we should expect more choppiness in the next week or over the next few days.

Key Movers

Whenever there is good news from China, risk appetite increases. The strengthening of the Chinese Yuan is also playing on the weakness of the US dollar today. Amongst the abundance of data from China, three key releases include the following:

• China's GDP in the first quarter was better than expected and came in at +6.4 percent versus the +6.3 percent expected. This is the same result as in the fourth quarter of 2018.
• China's industrial production surged to +8.5 percent in February, above the expected + 5.6 percent.
• China's retail sales also improved. They were reported at +8.7 percent, while the expectation was + 8.4%. This is above the February increase of + 8.2 percent.

It seems that China’s efforts are paying off; China has been participating in fiscal and monetary stimulus to help protect the economy from a hard landing.

However, the shared currency, the Euro, has had a limited strength following the news from China, mainly due to local catalysts. The ECB officials are ignoring any renewal of their negative interest rate tool and there is some doubt that it will happen. According to Bloomberg, ECB policymakers aren’t opposed to President Mario Draghi’s move to examine the impact of the measure, but many don’t yet see merit in a switch to so-called tiering to relieve some excess reserves from the deposit rate. Technically speaking, the EUR/CAD pair has been unable to leave the trading range started on April 16th. Until today, this trading range is between 1.4876 and 1.5233; any breakout from that range can give us a clue on the direction of this pair.

Expected Ranges

USD/CAD: 1.3292 - 1.3355 ▼

EUR/CAD: 1.4983 - 1.5088 ▲

GBP/CAD: 1.7277 - 1.7422 ▼

AUD/CAD: 0.9525 - 0.9584 ▼

NZD/CAD: 0.8913 - 0.9020 ▼