Canada Markets

Some bold predictions have come out of the Canadian banks recently to suggest even further drops ahead for the Canadian dollar, despite an almost 5% decline already in 2014.

A number of recent announcements have played into the hands of the dollar bears. Bank of Canada Governor Stephen Poloz recently announced that Canada's growth may be below expectations early in 2014, while slower-than-normal growth here and abroad may be viewed as the new normal. Poloz also left the option open for interest rate cuts, which is viewed as bearish for the Canadian currency.

At the same time, Federal Reserve Chairman Janet Yellen suggested that interest rates in the U.S. may rise sooner than expected (interpreted as mid-2015), which further boosts the U.S. currency in relation to our dollar.

Weak data from China is also weighing on the currencies of exporters such as Canada. China's flash Purchase Manager's Index or PMI was announced at 48.1, below expectations and also below February's 48.5. Readings above 50 reflect a growing economy, while below 50 reflect a contracting economy. This is an eight-month low for this data. China's economy is suggested to grow at a pace of 7.5% this year, after last year's 7.7% growth was a 20-year low.

RBC has suggested a move in the Canadian dollar to 87 cents by fall and we may even see trade as low as 85 cents next year, while the TD is looking for a move to 85 cents in the next few months and recovery back to 90 cents in late 2015.

Longer-term trends, as seen on the weekly chart (not shown) and the continuous monthly chart attached, indicate a continuing lower trend. As seen on the attached chart, long-term technical support remains at $.8786 CAD/USD, which is the 61.8% Fibonacci retracement of the move from the March 2009 low of $.7653 to the July 2011 high of $1.0618 CAD/USD. A move below this support level could trigger a move to test the 67% retracement of the same uptrend at $.8631 CAD/USD and perhaps also the July 2009 monthly low of $.8530 CAD/USD.

The second study indicates that the monthly chart is in oversold territory, although momentum indicators continue to trend lower showing no sign of turning higher. The weekly chart is also oversold (not shown) and has remained mostly in oversold territory since last November. This creates a situation where sudden noncommercial short-covering can move the market higher with little notice, although the third study indicates this group showing no concern.

As of the most recent Commodity Futures Trading Commission data, non-commercial traders or investors added 11,214 contracts to their net-short position to reach a net-short position of 69,805 contracts, indicating that this group is becoming increasingly bearish and currently hold the largest net-short position seen in data since early 2008. In the past 14 months, this group of investors has consistently maintained a net-short position, averaging a net-short position of 37,939 contracts.

The value of these bearish bets, at $100,000/contract, is $6.9 billion, up more than $1 billion from the previous week.

DTN's recent 360 poll asked about the moisture conditions as we near spring. 17% responded that moisture conditions are well-above average, 16% responded that moisture was above average, 51% viewed moisture conditions to be average and 16% responded that their area was dry.

16% of the Alberta respondents reported dry conditions, as did 50% of the Manitoba respondents. All of the Saskatchewan respondents indicated average moisture conditions.

Thanks to all those who responded.

This week's poll asks your thoughts on the order in council which will mandate rail movement for 90 days. Do you think this move will inspire performance on the part of the railroad? You can share your thoughts on the DTN 360 Poll found at the lower right side of your home page.

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

(ES)

© Copyright 2014 DTN/The Progressive Farmer. All rights reserved.