By Rob Samson

The outlook continues to turn more favourable for the Canadian dollar.

Despite a growing confidence in the CAD, we see some pressure being exerted today:

The pound sterling to Canadian dollar exchange rate is 0.1 pct higher on a day-to-day basis at 1.8130.The euro to Canadian dollar exchange rate is 0.19 pct higher at 1.5075.The US dollar to Canadian dollar exchange rate is 0.18 pct higher at 1.1053.Note: All CAD quotes here refer to the wholesale spot market. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.

The combination of weaker than expected US NFP data and the better than forecast Canadian jobs data put allowed the Canadian currency to advance further.

Canadian employment data was released last week and figures were impressive. The unemployment rate improved from 7.2% to 7.0%, whilst the employment change also beat estimates.

This has dampened expectations that the BoC will have to cut interest rates further.

"Sterling however, managed to remain in control and push the rate marginally above 1.81, even after UK data released earlier disappointed. BoC Governing Council member Murray will speak this afternoon but we doubt it will have a significant influence on the rate and expect some sideways trading," says Sasha Nugent at Caxton FX.

"From here, there is something of a vacuum in terms of domestic data releases—the important ones that is. CPI and retail sales are out on the 21st February and GDP on the 28th. There is a two or three-week window for the CAD to improve before we get a reminder of why the currency has been under so much pressure in the past couple of months in other words," says Shaun Osborne at TD Securities.

Concerning the technical outlook, Osborne reckons that the loss of support in the low 1.10 area last week sets USDCAD up for further corrective losses.

Osborne says:

"There has barely been any sort of correction at all to speak of since late September and while we think the medium-term trend remains firmly higher, short-term risks are geared to the downside.

"USDCAD rebounded from retracement support in the high 1.09s last week but gains have struggled to extend significantly and we think last week’s firm support zone (USDCAD 1.1040/45) should provide resistance to a deeper USD recovery.

"The short-term risk still appears to be geared towards more corrective CAD gains at the moment. We spot intraday resistance at 1.1070 (neutral above here). Only new cycle highs (or cheaper levels to buy nearer 1.09) will get us bullish USDCAD from here at the moment."

Canadian dollar outlook dependent on inflation data

"Last week’s labour data (job gains of 29k and a drop in the unemployment rate to 7.0%) was encouraging but small suggest only a moderate pace of employment gains.

"The market is pricing just a 10% chance of an interest rate cut in Canada over the next 12‐months (we expect no change as a 10% drop in CAD combined with a reacceleration of the US economy should provide a powerful backdrop for Canadian exports)."

Meanwhile, today Deputy Governor Murray will speak on promoting Canada’s economic and financial well‐being.