Daily Currency Update

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The Loonie falls after the Canada Mortgage and Housing Corporation declares a looming “historic recession” in the housing market.

CAD - Canadian Dollar

The Loonie loses against all G10 currencies except the Swiss Franc this morning. The USD/CAD is higher by 0.1 percent, trading at 1.3770, at the time of this writing (weaker Loonie). In a low volatility environment in overnight trading, the Loonie has not been favoured. The fundamental news came from Canada Mortgage and Housing Corporation that said the Canadian housing market will experience a “historic recession” in 2020, and it is likely to take more than two years to fully recover. Sales and prices are still likely to remain below their pre-COVID-19 levels by the end of 2022.

A strong equity market usually makes the Loonie strong in the very short-term and vice-versa. We have seen a flat equity market in overnight trading, which perfectly matches the meagre increase in the USD/CAD (slightly weaker Loonie). Crude oil also has an influence on the Loonie, but its importance has been decreasing as a Loonie driver lately. For example, crude oil has increased by 1.5 percent, while the Loonie has weakened as this report is written. Technically speaking, the USD/CAD is trading in a very narrow range, showing extreme levels yesterday with a 1.3822 high and a 1.3728 low. Today, it tested a 1.3789 high and a 1.3735 low, indicating a continued contraction of volatility.

On the release side, the Canadian Federation of Independent Business (CFIB) business barometer, which shows monthly results of CFIB's survey on small business confidence, expectations, and operating conditions in Canada, was released. It came in at 52.5, showing little change versus 53.2 last month. According to the CFIB, the readings in mid-May show that Canada's small business owners' sentiment appears to have plateaued after posting a few weeks of recovery from its record low in March. The current account balance was also released, showing a deficit of C$ -11.1 versus the C$ -10.01 billion expected.

Key Movers

The Euro holds above the 1.1000 handle against the Greenback after poor economic data in the US and despite US congress voting to authorize sanctions against Chinese officials for human rights abuses against Muslim minorities on Wednesday. US congress and the White House increased pressure on the government in Beijing amid rising tensions between US and China.

The RBA’s chief in Australia said the economy is doing better than it had initially thought, but it warned against withdrawing stimulus prematurely.

In general, higher inflation poses a risk to G10 economies as stimulus continues to come at full force and policy rates flirt with negative levels. For example, in the US, deflationary forces will dominate as the impact of Covid-19 continues in the short-term. Also, the ECB is concerned that lingering weakness in demand could create downside risks to inflation over the next few years.

Expected Ranges

USD/CAD: 1.3728 - 1.3820 ▼

EUR/CAD: 1.5189 - 1.5259 ▲

GBP/CAD: 0.6850 - 0.7050 ▲

AUD/CAD: 0.9113 - 0.9202 ▲

NZD/CAD: 0.8500 - 08596 ▲