We believe that the Canadian dollar will experience further gains in the week ahead. Although USD/CAD hit a high of 1.29 this week, it rejected that level on the prospect of a NAFTA deal and less dovish comments from the Bank of Canada. At their last policy meeting, BoC Governor Poloz and Deputy Governor Wilkins outlined their dovish bias but their tone seems to have changed this past week.
In a speech to the Financial Committee, Poloz said inflation is on target and the economy is close to potential. With a NAFTA deal imminent, we expect the Canadian dollar to outperform in the week ahead as long as GDP, the trade balance and IVEY PMI reports don’t disappoint in a significant way. Although USD/CAD itself looks bearish, we particularly like selling GBP/CAD given the back to back weakness in U.K. data including Friday’s GDP report.
Technically GBP/CAD rejected the 50-day SMA at 1.7950 and now appears poised for a move down to 1.7580, which is where the 20-week and 100-day SMA converge.