Canada: OPEC rumours send the loonie higher
|Canada’s central bank will decide about its rate tomorrow and financial markets expect it to remain unchanged at 0.50%. The cost of borrowing should then stay low for some more time and underpin the housing bubble. Since 2009, the average price of a home has increased by more than 40% in nominal terms. In terms of economic data, annualised inflation (1.6%) is declining and is still below the central bank’s target midpoint. Retail sales (excluding Auto) is also on the soft side with -0.2% y/y performance.
We believe that the major CAD drivers are US President Donald Trump and OPEC. The market is pricing in more difficulties for Trump to achieve its reforms. There are now more downside pressures on the US dollar. The loonie has been strengthening since the start of this month and is now trading around one-month highs against the US dollar below 1.35. However, there are rumours that OPEC may continue to cut production beyond June, and for the next nine months, so this is also sending the loonie higher. There is definitely more downside risk on the USDCAD pair.
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