Canada Markets

Investors in CAD Grow Increasingly Bearish

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar weakened against the USD for the first time in three weeks last week, while the exchange continues to hold above retracement support at $.75899 CAD/USD. Investors have added to their bearish net-short position for three consecutive weeks (first study), while the lower study shows the exchange rate drifting sideways overall. (DTN ProphetX chart)

Despite last week's 1/4 point hike in rates reported by Canada's Central Bank on Wednesday, uncertainty surrounding global trade continues to weigh on the Canadian dollar. Trade for the week of July 9 saw Canada's currency (spot Canadian dollar) close lower for the first time in three weeks, closing 34 basis points lower at $.75983 CAD/USD, taking back more than the gains realized in the week prior. The loonie finished 9 1/2 basis points higher at $.76078 CAD/USD in Monday's trade, while facing mixed signals, with weakness seen in the U.S. currency while crude oil is facing pressure.

Over the past three weeks, trade has tested but has closed above retracement support at $.75899 CAD/USD each week, a level that represents the 67% retracement of the move from the May 2017 low to September 2017 high on the weekly chart. A sustained close below this level could lead to further downside, with potential support at the June low of $.74974 CAD/USD.

The middle study shows investors adding to their bearish net-short position for the third straight week as of July 10 at 52,887 contracts, while the dotted red line shows this to be the largest net short seen since June 2017. Uncertainty surrounding trade with the U.S, increased uncertainty over Canada's free trade with Europe (CETA) given Italy's refusal to endorse the deal, prospects of weakening global growth and weakening crude oil prices remain bearish factors for Canada's currency.

This week's reports include Statistics Canada's Retail trade and Consumer Price Index report, both to be released on Friday.

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