With Canada in celebration mode, the US dollar is going up up and away. The US dollar has gained a lot of momentum driven by the Greece powder keg, while the Canadian dollar is pressured by falling oil prices today.
The uncertainty over Greece, lackluster Canadian GDP, falling oil prices, has all created a perfect storm for the Canadian dollar, driving it down to a near 2 month low.
The poor GDP data yesterday may start to make the Bank of Canada worried about growth in the second quarter. A worrisome Bank of Canada might itch towards another rate cut as they typically do when they panic. The Bank of Canada storyline will start to play an important factor in where the Canadian dollar moves going forward. The Bank of Canada seemed content and on the sidelines, but weak GDP data might start to tilt things towards another rate cut, which would be devastating for the Canadian dollar.
The Canadian dollar lacks catalysts, while the US dollar has a number of favorable drivers including stronger economic prospects, a future rate hike, and risk aversion events in Greece helping the cause.
This remains a US dollar story and look for the US dollar to grind higher towards 1.28 USD/CAD by end of Q2 if weak data in Canada continues.
By: Rahim Madhavji, President of Knightsbridge Foreign Exchange