Canadian Dollar Fundamental Forecast: Neutral
- Canadian Dollar about two percent weaker against USD[1] since last BoC rate decision
- December’s rate hold may set the pace for next hike to come, potentially boosting CAD[2]
- Canadian jobs report may disappoint, draining CAD. Can OPEC reignite crude oil?
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The Canadian Dollar continued being pressure against the US Dollar[4] as we headed towards the end of the week. This has generally been the trend since October amidst the backdrop of fading near-term Bank of Canada rate hike expectations and a slump in crude oil[5] prices. The former represents the main appeal of a currency while the latter is a key source of revenue for Canada.
Likely, the main event for the Loonie ahead may be the last BoC rate decision of 2018. This event is arguably one of the key reasons why CAD has been under pressure since the central bank last raised rates in October. About a month ago, the markets were roughly pricing in a 30 percent chance of another hike in December. Those are now at zero, aiding to send USD/CAD[6] about 2% higher since then.
Since markets are forward looking, attention will turn to the BoC’s guidance to gauge when the next hike could be expected. This is because policymakers are looking to raise rates to a neutral level, similar to the Fed. Overnight index swaps are pricing in a 66% chance of a rate increase
