Canada Markets

The Loonie's Move to Parity Abruptly Halted

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
Connect with Cliff:
@CliffJamieson
Prior to today's close, the June Canadian dollar has rallied 3.4% from its February low to today's high before meeting selling pressure. Trade during the past two days has seen a move over the June contract's 50% retracement of the move from the September high to the March low, although the dollar sold-off sharply to close far below this level in today's trade. (DTN graphic by Scott R Kemper)
Prior to today's close, the June Canadian dollar has rallied 3.4% from its February low to today's high before meeting selling pressure. Trade during the past two days has seen a move over the June contract's 50% retracement of the move from the September high to the March low, although the dollar sold-off sharply to close far below this level in today's trade. (DTN graphic by Scott R Kemper)

Two widely varying reports hit the market today with respect to the future of the Canadian dollar. The first came from respected Canadian economist David Rosenberg as discussed in a Globe and Mail commentary. Rosenberg has a simple warning for the speculators who now hold a potential near-record short position on the Canadian dollar, and that is to watch out!

Rosenberg states that the last time that heavy bets were placed against the dollar was in the summer of 2007, when "the mother of all short-coverings" drove the Canadian dollar up 7% against the U.S. dollar within three months. 

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On the flip side of the coin, the Toronto Dominion Bank (TD) released an economic report titled The Case for a Weaker Loonie. In it, they build a case for a downward move to $.90 CAD/US dollar by early 2014. The TD sees Canadian growth under-performing that of the U.S both this year and next, while weaker global growth is affecting Canada's export potential as well as the country's commodity prices. One last wild card affecting the Canadian dollar is United States dollar strength. The TD sees the U.S. dollar gaining another 4 to 5% over the course of this year. Actions taken, such as Japan's commitment to increase the money supply in order to achieve an inflationary environment, will lead towards further U.S. dollar strength.

While the Canadian dollar currently trades within an upward trending channel and has been in close range of parity with the U.S. in recent days, it received a blow in today's market after reaching a high of $.9977 while trading above $.9957 CAD/US dollar, the 50% retracement of the downtrend from the September high of $1.0268 CAD/US dollar to the March low of $.9646 CAD/US dollar. At the time the attached chart was printed, the market was down 39 basis points; in the centre of its trading channel while near the mid-point of its daily and its weekly trading range. The second study on the chart represents the weekly stochastic indicators, which indicate continued upward momentum.

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

(AG)

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Prior to today's close, the June Canadian dollar has rallied 3.4% from its February low to today's high before meeting selling pressure. Trade during the past two days has seen a move over the June contract's 50% retracement of the move from the September high to the March low, although the dollar sold-off sharply to close far below this level in today's trade. (DTN graphic by Scott R Kemper) 
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