Canada Markets

Since the March 2020 low of $0.685166 CAD/USD, the spot Canadian dollar has gained as much as $0.1469 or 21.4% to the June 1, 2021 high of $0.832016 CAD/USD.

Since May 14, trade has been range-bound, holding within an 80-basis point range, between $0.824049 and $0.832016 CAD/USD, with the June 9 close of $0.826105 falling closer to the lower-end of the range. The June 9 session saw trade taking place both higher and lower than the range traded on the previous session, while closing a fraction of one basis point higher at the end of the session.

Trade remains range-bound, with $0.83 CAD/USD posing resistance. Since mid-May, the loonie has closed slightly above $0.83 CAD/USD on two sessions but failed to sustain gains above $0.83 in four other sessions.

Over the past five sessions, the daily chart shows the close ending below the 20-day moving average in three of the past five sessions.

The lower study on the attached chart shows stochastic momentum indicators trending lower, although have yet to reach oversold territory and signal that further downside may be possible.

While not shown, the noncommercial net-long position in the Canadian dollar futures increased for the sixth time in seven weeks as of the CFTC's June 1 statistics, while the 48,772-contract net-long position is the largest held since November 2019 when 54,002 contracts was reported.

Dollar bulls may lose interest following today's Bank of Canada monthly rate decision and policy release. The bank left its key rate unchanged at 0.25% as expected, while indicating it may remain unchanged until recovery is reached in the second half of 2022. The Central Bank sees recent inflation as transitory, or temporary, lowering chances of a rate hike that would support the Canadian dollar, while the bank will continue its program of purchasing federal debt on a weekly basis, a move that will continue to weigh on interest rates, viewed as favourabe news for borrowers.

It will take a break below $0.826105 to signal a change in direction, while technical analysis theory would indicate the potential for a continued move by an amount equal to the width of the recent range, or 80 basis points to $0.8160 CAD/USD. The 33% retracement of the move from the 2020 low to 2021 high is calculated at $0.7836 CAD/USD, which could be viewed as a longer-term downside target in the event of a major correction.

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