Recently the Loonie has been riding a wave of bullish economic data; last week’s impressive Employment Change report remains fresh in the minds of Canadian dollar bulls, coupled with a much stronger than expected Housing Starts figure (a rise of 15.4% in February). With Canada being a major oil producer, the loonie also benefited from higher crude oil prices which hit a record high of $111 last week.

Whether or not the economy’s bullish streak can continue is the key question rolling forward. However, with next week’s key Consumer Price Index report due, substantial volatility across CAD pairs is a likelihood. This data will be critical in solidifying interest rate expectations for the domestic economy.

On another note, during a speech on Thursday BoC Governor Mark Carney said the Canadian economy is suffering from the global credit crunch and that more monetary easing may be required soon.

The reliance of the Canadian economy on the US, means that the loonie suffers on deterioration of the US economy. Last week’s comments from Mark Carney suggest Canadian interest rates will continue to fall in the short term to prevent the Canadian economy from slowing further.

Markets currently expect that the Bank of Canada will continue on its interest rate-cutting cycle through the medium term, and some analysts are calling for an aggressive 50 basis points in BoC rate cuts in April. However, we are still expecting multiple cuts in the UK, with the next one possibly in April as well. Therefore it is expected that the cross will remain rangebound between 2.09 and 1.94 in the near future.