The Loonie is weakening this morning in North America, following more negative market sentiment. Primary drivers include a slightly weaker crude oil WTI, and the US dollar’s rapid recovery of early losses seen in the European and Asian session.
After the released CPI, that came at the consensus of 1.4 percent yesterday, the next key date will be March 6th. On this day, the Bank of Canada is widely expected to leave its policy rate unchanged with investor focus on whether the statement hints at staying on hold for longer than markets are anticipating. Governor Poloz has made clear the path forward is still towards higher interest rates; however, more data is needed. According to Poloz, the road back to neutral interest rates is "highly uncertain."
These days, the Loonie is trading much more like an exclusive cyclical commodity currency. This is understandable given the correlation with crude oil. Canada’s trade balance, capital flows, overall economic cycle, and, by extension, monetary policy are all of course strongly influenced by the path of energy prices, which in turn reflects fundamentals.
From a technical perspective, the USD/CAD pair had a consolidation between 1.3125 and 1.3175 during the week. This morning it is testing the 1.3200 handle and it might push higher if the “risk-off” environment in North America increases. The USD/CAD pair continued in its uptrend and, given that the Loonie is trading with more exogenous drivers lately, the USD/CAD might test 1.3235 and then 1.3275 over the next few days.