Canada Markets

Has Canadian Dollar Strength Come to an End?

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
Connect with Cliff:
@CliffJamieson
The spot Canadian dollar has trended higher for a year but is poised to close lower for a second week as we near a period of normal historical strength. The blue bars of the histogram shows investors paring their bullish net-long position in the loonie for a second week as of March 15, with the current net-long futures position of 10,263 contracts below the four-week moving average (black line). (DTN ProphetX chart by Cliff Jamieson)
The spot Canadian dollar has trended higher for a year but is poised to close lower for a second week as we near a period of normal historical strength. The blue bars of the histogram shows investors paring their bullish net-long position in the loonie for a second week as of March 15, with the current net-long futures position of 10,263 contracts below the four-week moving average (black line). (DTN ProphetX chart by Cliff Jamieson)

The spot Canadian dollar reached a low in the week of March 16, 2020, of $.6852 CAD/USD, while reaching a three-year high of $.8055 CAD/USD in the week of March 15, 2021, a full year later. The loonie failed to close higher during the week after reaching the high and is poised for a second weekly loss this week. While a change in trend is yet to be signaled, recent trade is worth noting.

The spot Canadian dollar closed $.0029 lower on March 25 at $.7929 CAD/USD, reaching its lowest trade in 11 sessions. So far this week, the spot dollar is down $.0074, poised for its second consecutive weekly loss after losing $.0018 last week.

The interesting point to make is that we are seeing weakness ahead of April, which is noted as historically showing the greatest monthly strength over the course of the year. Thackray's Investors Guide shows the Canadian dollar increasing over the month of April by an average of .7% over the 1971 through 2018 period.

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The monthly spot dollar chart shows an average percent gain of .4% over the past five years and 1.2% over the past 10 years, while gaining strength in April in eight of the past 10 years.

This move coincides with a seasonal move in crude oil prices, as demand ramps up ahead of the summer driving season. At the same time, the May NYMEX crude oil chart shows a $31.79/barrel increase from the contract's November low to March high and has since shown three consecutive lower closes on the weekly chart. A further surge in spring crude prices may be in jeopardy given uncertainty in global markets.

The attached chart shows current trade holding above the trendline drawn from its March 2020 low, with support seen at $.7893 CAD/USD. A breach of the four-week low may be needed to signal a change in trend, with a range of support seen from the $.7855 to $.7878 range, weekly lows seen since mid-February.

The histogram on the lower study shows noncommercial traders paring their bearish net-long futures position over the past two weeks to 10,263 contracts as of March 15, which is slightly below the four-week average.

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

Follow him on Twitter @Cliff Jamieson

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The spot Canadian dollar has trended higher for a year but is poised to close lower for a second week as we near a period of normal historical strength. The blue bars of the histogram shows investors paring their bullish net-long position in the loonie for a second week as of March 15, with the current net-long futures position of 10,263 contracts below the four-week moving average (black line). (DTN ProphetX chart by Cliff Jamieson) 
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