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NAFTA concerns kept the Loonie on the defensive last week. What are possible catalysts for its price action this week? Here are a few ideas:

BOC’s monetary policy decision (Jan. 17, 3:00 PM GMT)

On Wednesday we’ll know if Bank of Canada (BOC) feel like starting their year with an interest rate hike. Market players are currently pricing in another 25-basis point rate hike to 1.25% after its one-two punch last year.

Other analysts aren’t convinced, however. See, as late as mid-December Governor Poloz shrugged off improvements in Canada’s economy, saying that the economy has made “tremendous progress over the past year, and it is close to reaching its full potential” but that he and his team would also consider other uncertainties (read: NAFTA, labour market slack, etc) in their next policies.

Oil-related updates

As mentioned below, the Loonie didn’t pay much attention to oil price updates last week. Will the tides change this week?

Output cuts from OPEC and Russia are keeping the oil market supported for now, but word around the hood is that the U.S. and Canada are reporting more drilling activities. On top of that, Uncle Sam is scheduled to print its crude oil inventories report at 4:00 PM GMT on Thursday. Keep your eyes peeled in case the report affects the Loonie’s price action!

Last Week’s Price Review

The Loonie had a reversal of fortune since it was the best-performing currency last week but is this week’s biggest loser. And like last week, the Loonie didn’t really pay attention to oil prices.

Overlay of CAD Pairs & Crude Oil (Black Line): 1-Hour Forex Chart
Overlay of CAD Pairs & Crude Oil (Black Line): 1-Hour Forex Chart

As you can see in the overlay of CAD pairs above, the Loonie suffered the bulk of its losses on Wednesday, but was already showing signs of weakness on Tuesday. The only potential catalyst at the time was the disappointing Canadian housing starts report (217K vs. 240K expected, 252K previous), so that was the likely reason for the Loonie’s weakness.

However, the Loonie only started to get noticeable selling pressure about an hour after the report was released, so some market analysts said that it’s possible that the Loonie was also pushed lower by Greenback strength and profit-taking by Loonie bulls ahead of next week’s BOC statement.

The Loonie then got another bearish injection when Canadian building permits missed by a long shot (-7.7% vs. -0.7% expected, 4.4% previous). However, the biggest source of the Loonie’s pain on Wednesday was a Reuters report that cited Canadian government officials as saying that Canada thinks that Trump will pull out of NAFTA.

And this apparently caused BOC rate hike expectations to plummet while raising expectations that the BOC will sound more dovish next week, market analysts say, which is why the Loonie’s reaction was rather strong, with signs of follow-through selling that haunted the Loonie for the rest of the week.