Canada Markets

Spot Canadian Dollar Reaches a Four-Month Low

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar closed 26 basis points lower on Wednesday, while reaching its weakest level against the U.S. dollar since October. Potential support lies at the September and October lows, along with trendline support at $0.7472 CAD/USD. The lower study shows traders reducing their bullish net-long position for four consecutive week as of Feb. 18. (DTN ProphetX chart)

Global economy fears linked to the spread of COVID-19, along with Canada's hamstrung economy due to railway blockades, a slide in crude oil prices and U.S. dollar strength, are bearish factors acting to weigh on the Canadian dollar trade. Commodity currencies such as the Canadian dollar are viewed as risky, as capital flows to safe havens around the world.

On Wednesday, the spot Canadian dollar completed its full retracement of its recent February rally, while dipping to its weakest level traded against the United States dollar seen since Oct. 8. Wednesday's trade saw the spot Canadian dollar shed 26 basis points to close at $0.75088, after dipping as low as $0.7501 CAD/USD.

Feb. 21 trade in the spot dollar resulted in a close above the 100-day and 200-day moving averages at $0.7571 CAD/USD for the first time in just over one month, while this move was met with resistance.

The red bars of the histogram in the lower study shows noncommercial traders paring their bullish net-long position in the loonie over the past four weeks, while at 7,817 contracts as of Feb. 18, is the smallest net-long position seen since Oct. 8 2019.

Given further weakness, potential chart support lies at the Oct. 3 low of $0.74969 CAD/USD, the September low of $0.74774 CAD/USD and trendline support drawn from the Dec. 31, 2018, low calculated at $0.74723 CAD/USD.

According to Thackray's Investor's Guide, the Canadian dollar has averaged a 15 basis-point gain in the month of March over the 20 years from 1999 to 2018 and a 20 basis-point move higher over the past five years, from 2014 through 2018. April is viewed as a period of seasonal strength for the Canadian dollar, along with the Aug. 20-Sept 25 period, both also representing periods of seasonal strength in oil, which could be jeopardized if the coronavirus scare continues to weigh on trade.


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Philip Shaw
2/27/2020 | 10:39 AM CST
Interesting Cliff, that idea of Canadian Dollar seasonality....never hear that one before.