The Canadian Dollar is amongst the worst performing G10 currencies this week with only fellow commodity-currency the Australian Dollar being in the running for the wooden spoon.
Lower crude oil prices and a dairy trade dispute between the US and Canada weighed on the CAD.
Meanwhile, Australia and New Zealand dairy industry leaders have also said that they would support moves by the US to draw the World Trade Organizaton into a trade dispute with Canada.
Separately the Ontario government has announced that they will unveil a package of measures later today to cool the real estate market, which will include new tax on foreign property speculators.
The Toronto province is also considering a 15% tax on property purchases by foreign buyers.
In 2015, the value of Canadian exports of dairy products was around CAD 211m compared to total export value of CAD 525bn.
“Hence the dairy trade dispute is unlikely to materially impact the Bank of Canada’s economic and inflation outlook. On the exchange rate, against the US Dollar we expect the CAD to find strong support closer to 1.36 region,” say ABN AMRO, the Dutch financial services provider.
While not good for sentiment, the above factors are however likely to be minor compared to the real guarantors of Canadian Dollar value.
“Overall we expect monetary policy and crude oil prices to remain the main drivers for the CAD,” says a note from ABN AMRO.
The USD/CAD is at 1.3478 at present while the GBP/CAD is at 1.7299.
“We think that the downward correction will not last long and may represent buying opportunities over the medium term,” says a note from the foreign exchange team at UniCredit Bank.
UniCredit argue the Canadian dollar has likely suffered from the oil price’s inability to hold gains above recent peaks at around USD 56/bbl, but the latest labour data at home were encouraging, showing larger-than-expected net job creation, primarily among full-time employees here too.
Also working in favour of an eventual stabilisation of CAD is the Bank of Canada which at their most recent meting were less dovish, expecting the Canadian output gap to close in 1H18, i.e. sooner than projected in January.
The recent USD-CAD bounce has happened in spite of the further narrowing of the 2Y swap spread between the two countries.
“On the back of this picture and given the continued underlying USD overvaluation, we remain constructive on these two commodity currencies, targeting the Aussie back towards 0.80 and the Canadian dollar beyond 1.30 against the USD in the coming quarters,” say UniCredit.