Canada Markets

Canadian Dollar Stalls at Resistance

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Since reaching its March 18 low against the U.S. dollar, the spot Canadian dollar has climbed 275 basis points or 4%. April 6 trade saw the spot dollar gap higher, extending its move above its 20-day moving average, nearing the 38.2% retracement of the move from the Dec. 31 high to March low. The lower study shows noncommercial traders paring their bearish net-short position as of Mar. 31 data. (DTN ProphetX chart)

The Canadian dollar trade is an example of a market price taking the elevator down and the escalator up. In the weeks of March 9 and March 16, the spot Canadian dollar lost 519 basis points or 7% to close at $.6931 CAD/USD, reaching its weakest level since January 2016.

Since the March 18 low, the loonie has recovered 275 points or 4%, including the April 7 move which formed a bullish gap higher with a gain of 63 basis points to end at $.71464 CAD/USD.

Tuesday's move extended the move above the spot dollar's 20-day moving average, which was breached in April 6 trade for the first time since Feb. 21, although the April 7 close slumped back to the middle of the session's trading range. Tuesday's high fell just short of testing the high reached on March 27, while also failed to test the 31.8% retracement of the move from the Dec. 31 high to the March 18 low at $.7181 CAD/USD. A breach of this level could point to the potential for a continued move to the 50% retracement at $.7283 CAD/USD.

The red bars of the histogram showed in the lower study shows investors moving from a bullish net-long position in the Canadian dollar to a bearish net-short in the week ending March 10, the first bearish position seen since June 2019, while extending this bearish position in the weeks ended March 17 and March 24. The most recent data as of the week of March 31 shows this group paring their net-short position to 21,929 contracts. Short-covering may have been a feature in advance of rumors that Saudi Arabia and Russia had agreed to cut production, which resulted in a spike in crude prices on April 2.

Traders will continue to watch the economic fallout in Canada due to the COVID-19 spread and the global crude oil price war. Reports on April 7 indicate OPEC and its allies are eying a three-month production cut, to be discussed on an April 9 video-conference that will include Alberta officials. An April 10 Good Friday emergency meeting is planned to follow with G-20 energy ministers. Results of this meeting, good or bad, could lead to further volatility in Canada's currency depending on the direction taken by crude markets.

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