USD/CAD: Loonie to see temporary weakness amid overbought conditions – MUFG

The Canadian dollar has continued to correct modestly lower against the US dollar resulting in USD/CAD hitting the 1.2200 level on Thursday. The loonie was undermined both by the sell-off in the oil market and more importantly by comments from BoC Governor Macklem who expressed more concern over CAD strength. However, this weakness is expected to be short-lived, in the view of economists at MUFG Bank.

See: USD/CAD to touch 1.16 at the end of the year – ING

BoC signals more concern over CAD strength

“Governor Macklem expressed more concern over Canadian dollar strength. He stated that ‘a stronger dollar creates some risk for our outlook. It is moved a lot further that could have a material impact on our outlook and it’s something we’d have to take into account in our setting of monetary policy’.”

“Our technical RSI signal shows that the Canadian dollar has become heavily overbought in the near-term which increases the risk it continues to correct lower in the near-term following Governor Macklem’s comments.”

“Any weakness is likely to prove short-lived though while the Bank of Canada continues to signal that it plans to begin raising rates next year and is backed up by better than expected economic data releases from Canada.”