Canada Markets

The spot Canadian dollar advanced 2.3% in the month of December and 5.2% over the course of 2019. December is not viewed as a historically strong month for the Canadian dollar/United States dollar trade. According to seasonal analysis reported by equityclock.com, the Canadian dollar realized an average gain of 0.1% against the USD over the 20 years ending 2018. Of the six months that realized an average gain over this 20-year period, the month of December is tied with the month of May as the lowest monthly gain for the year.

The highest monthly gain seen for the month of December over this 20-year period was 3.1%, realized in 2017. It's also interesting to note that the smallest minimum return was a loss of 3.4% realized in 2015, which was the smallest minimum return reported for any month of the year over the 20-year period.

The spot Canadian dollar gained 173 basis points in December 2019, closing higher in 11 of the month's 21 trading days, the largest monthly increase in six months, while reaching its highest level against the USD in 14 months or since October 2018.

As seen on the attached chart, the spot dollar monthly chart signals a breakout from a symmetrical triangle pattern, as shown by the blue lines, breaking out through a downtrend line drawn from the September 2017 high of $0.8263 CAD/USD.

The stochastic momentum indicators on the first study continue to trend higher, while have yet to reach the over-bought range on the monthly chart, signaling the potential for further upside potential.

The red histogram bars on the lower study shows Canadian dollar traders holding the largest net-long position or bullish position in the month of October seen in almost two years, or since November 2017. This bullish position has been pared over the months of November and December, although it is important to note that data for Dec. 31 has yet to be reported and will most likely show an upward move in the December bar given recent strength.

It's also interesting to note that crude oil futures for February delivery gained 10.7% in December, while the noncommercial net-long position held as of Dec. 24 was the highest or most bullish position held by this group since September 2018.

The move in the Canadian dollar in December broke above retracement resistance at $0.76836 CAD/USD, which represents the 38.2% retracement of the move from the September 2017 high to the December 2018 low. Given further strength against the U.S. dollar, a reasonable target would be the 50% retreatment level at $.77943. This suggests that the recent move above $0.77 CAD/USD could result in a continued move of close to 100 basis points.

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DTN 360 Poll

A recent poll asked readers if they felt the Canada-United States-Mexico (CUSMA) trade deal should be ratified, given warnings from the Dairy Farmers of Canada that the deal could be slippery slope when it comes to future exports of Canada's ag products.

Seventy percent of the responses to this informal poll indicated that the deal should be ratified, although 20% of total responses indicated that Canada may need to work harder to protect ag exports in the future.

A further 20% of respondents indicated that the deal should not be signed as it gives up too much autonomy, while 10% were undecided.

This week's DTN 360 Poll asks readers what they think of the potential U.S.-China trade deal that may be signed in January and how it may affect Canada's industry. We value your input and thank you for your participation!

Wishing readers a happy and prosperous New Year!

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow him on Twitter @CliffJamieson

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