Canadian Dollar flounders on Monday, BoC notes continued pessimistic outlook

• The Canadian Dollar broadly weakened on Monday as markets look elsewhere.
• Canada caught in a trap of low expectations feeding even lower expectations.
• Canadian CPI inflation due on Tuesday, could help or hinder CAD.

The Canadian Dollar (CAD) broadly softened on Monday as markets got the new trading week underway. CAD flows fully reversed direction in a follow-through of last Friday’s pullback, sending the Canadian Dollar to an eight-trading-day low against the Greenback. 

Canada is set to print the latest iteration of Canadian Consumer Price Index (CPI) inflation on Tuesday, and markets are hoping for a steep drag on headline monthly CPI inflation to help push the Bank of Canada (BoC) into another rate cut after the Canadian central bank delivered a quarter-point trim in June. Canadian Retail Sales and Raw Materials Price Index inflation also loom over the horizon later in the week.

Daily digest market movers: Canadian Dollar stumbles as BoC highlights pessimistic firms

• The BoC’s latest Business Outlook Survey showed many Canadian firms have had weak sales expectations for several quarters, citing still-high equipment costs as a reason to avoid investment spending.
• A notable lack of investment in productivity improvements means Canadian firms are caught in an efficiency trap where firms avoid productivity investment because of a middling economy lacking productivity investment.
• Despite weak demand and ongoing high costs, the proportion of firms expecting a recession in the coming 12 months continues to decline, down from a high of 45% in Q1 2023 to just 20% in Q2 2024.
• US Retail Sales on Tuesday could complicate things as rate-cut-hungry markets hope for a continued decline in US activity indicators.
• BoC’s Business Leaders’ Pulse, percentage of firms reporting positive sentiment minus the percentage reporting negative sentiment:

Technical analysis: Belly-up CAD finds fresh lows, sends USD/CAD higher after clean 200 EMA bounce

The Canadian Dollar (CAD) has flattened across the board on Monday, declining against all of its major currency peers as the new trading week gets underway. The CAD fell four-tenths of one percent against the Japanese Yen (JPY) and the Swiss Franc (CHF). and shed roughly one-fifth of one percent against the US Dollar (USD).

USD/CAD rallied to af resh eight-day high on CAD weakness on Monday, jumping back above 1.3660 after the pair formed a clean bounce from the 200-day Exponential Moving Average (EMA) at 1.3590. Near-term technical consolidation remains likely as bids challenge the 50–day EMA at 1.3666, and a rough supply zone priced in above the 1.3700 handle could get any bullish extensions stuck in the muck.

USD/CAD hourly chart

USD/CAD daily chart