Strong Canadian Economy Leads To Positive Outlook For The Canadian Dollar
A recent Reuters poll predicts that the Canadian Dollar will grow stronger, especially against the US dollar courtesy of the currently strong Canadian economy.
The report represents great news for Canadian traders as it states that the Canadian Dollar will maintain a strong performance even as global trade plunges into economic uncertainty. The CAD peaked at 1.3016 against the greenback on July 19 before falling by 2% possibly due to declining oil prices.
Canada is a major oil exporter. The decline was also attributed to the mounting concerns about the China-U.S trade war.
The USD/CAD currency pair kicked off the week on an overall bullish trend until Wednesday when it peaked at around 1.3345 before turning bearish. The reversal was likely influenced by the interest rate cuts and the rising political-economic tensions between China and the U.S. The currency pair traded at around 1.3225 at the time of this press.
The Canadian Dollar has been holding its own against the US dollar, and it looks like, the Canadian economy's positive performance will likely continue to support the currency. However, that does not mean that it is immune to the current uncertainties. The country is operating on a current account deficit, and it focuses heavily on commodities export, including oil.
Canada is still at risk of being caught in the crosshairs in the ongoing trade war between China, and the U.S. Canada's current economic performance is strong enough to weather the storm, but it might end up being affected if the trade tensions continue to escalate.
"We believe that current domestic conditions are stable within Canada and support the neutral stance by the Bank of Canada," stated Simon Harvey, a forex analyst for Monex Canada and Monex Europe.
More statistics from Canada's economy may further strengthen the CAD's position
Canada is scheduled to release its job report for July on Friday (today), and already there are a lot of positive expectations. The country's unemployment in June was extremely low at 5.5% while its annual inflation rate was in line with the 2% target set by the Bank of Canada.
The Canadian Central Bank decided to hold the benchmark interest rate at 1.75% in July, and it also announced that it does not plan to slash interest rates any time soon.
However, money markets anticipate a 25-basis-point rate by the Bank of Canada by the end of next year. Yet, that is little compared to the US Federal Reserve's expected easing by roughly 100 basis points.
The Canadian Dollar's outlook currently looks good, and many analysts share the same sentiment. A poll involving 40 currency analysts revealed that they expect the USD/CAD to rise to 1.31, which means the Loonie will be worth about 76.34 USD cents.
So far the Canadian Dollar has gained about 3% against the greenback since the start of 2019. Further weakness in the US dollar may lead to more gains for the Loonie in 2019. Analysts also expect oil prices to improve and also to start supporting the Canadian Dollar's performance in the future.