Canadian Dollar Interest Rate Bias: Bearish
Canadian Dollar interest rate expectations technically improved through recent months, as surprisingly stable Bank of Canada interest rates boosted the Loonie’s stance against the lower-yielding US dollar. Indeed, short-term Canadian Dollar interest rates shot higher when the BoC surprised traders by leaving rates unchanged at recent meetings. Yet interest rate traders feel that the BoC simply put off the inevitable, and longer-term yields have remained comparatively unchanged. As such, we view a sharply negative 2-year yield – 3-month LIBOR interest rate spread a bearish development for the Canadian dollar on a longer-term basis—leaving our interest rate bias to the downside for the CAD.
