Sterling made significant ground on all major currencies last week and the Canadian Dollar was no exception to this rule with gains from the high 1.70’s at the beginning of the week to the mid 1.80’s on Friday. The string of negative data again weighed heavy on the currency with weak Canadian fundamentals and a declining outlook for the global economy driving flows. Unsurprisingly the weakness in crude oil (which accounts for 50% of all Canadian exports) was evident in the International Trade Balance surplus which fell to its lowest in over a decade. Although, there is some positive news with rising commodity prices which should boost the much beleaguered Canadian economy.

There is a large amount of data out this week which will shed some light on the direction of the Canadian Dollar. The most important of this data is the BoC rate decision on Tuesday which with a contracting economy and tightening credit markets should see an expected cut of 50bp taking it 1.00%. This follows the 75bp cut from last month, signs that the central bank is trying to soften the blow of the looming recession. Although the rate decision may overshadow the majority of data out this week (retail sales and consumer price reports) if negative as forecast, the expectations for future domestic growth and any attempt by CAD to rally should only be short lived.