The Canadian Dollar at a Glance
The Canadian dollar was relatively flat in August, recovering from the late-month multi-year lows on the back of a remarkable 3 day, 30% rally in oil prices into month end. The domestic risk for the Canadian dollar remains primarily related to oil, with the added concern of the Bank of Canada’s interest rate decision on September 9th and the coming election in October.
From a global perspective, Canadian dollar risk remains susceptible to the broader turbulence that will likely arise as the Federal Reserve begins to raise interest rates, which they have implied could happen this year. On top of this, risk will be tied to the ongoing impact of the global turmoil sparking from China. The swift official intervention in securities markets coupled with an implied acceptance of a weaker Renminbi has hammered the global markets.
Persistent weakness in commodity prices and soft global demand remain hurdles for the Canadian dollar. Despite the economic contraction in the first half of the year, the labour market has continued to add jobs at a moderate pace. In terms of monetary policy, the bank of Canada’s primary focus remains tied to oil prices. Canadian dollar sentiment remains bearish with near term CAD weakness likely to result from the expectations of the Federal Reserve policy normalization on its way.