Canada Markets

A Canadian markets blog reader suggested that the decline in the Canadian dollar against the U.S. dollar should be viewed as one of Canada's top ag stories of 2014. The attached monthly chart of the spot Canadian dollar shows the Canadian dollar reaching a first-quarter low of $0.8873 CAD/USD in March, rallied to a monthly high of $0.9413 in July and has since resumed its long-term downtrend which began in July 2011. Canadian dollar analysis from the University of British Columbia's Sauder School of Business shows the Canadian dollar down 8.8% against its U.S. counterpart in the past year, down 4.6% in the past 90 days and down 3% in the past 30 days.

November trade saw the spot Canadian dollar move through potential Fibonacci support at $0.8799. which represented the 61.8% retracement of the move from the March 2009 low to the July 2011 high, while December trade has pushed further below this level while also moving below the 66.7% retracement (not shown) in December trade at $0.8654. Potential support may be found at the July 2009 low of $0.8540 CAD/USD, while a lesser-followed 75% retracement level of $0.8410 may also provide support on the long-term chart.

The middle study is a histogram of the net-position held by noncommercial traders, or investors, which represents a view of how the world sees our dollar. Investors held a net-long position in July and August of this year, signifying a bullish view of the Canadian currency, although these are the only two months in almost two years that investors haven't held a net-short position which has led to a negative bias for the loonie.

The lower study indicates momentum indicators continuing to grind lower, while in oversold territory. Daily and weekly charts also reflect an oversold dollar, which can potentially lead to a sudden change in direction for this market.

Moving into 2015, it's conceivable that the current trend will continue. GDP growth in both the U.S. and Canada are reported above expectations, although Canada's third-quarter growth was reported at 2.8% in late November while on Tuesday U.S. growth in the third quarter was reported at 5%, the highest level in 11 years. This could lead to the long-discussed interest hike in the U.S. interest rates, which could further weaken the Canadian dollar against the U.S.

Also, weaker oil prices have weighed on Canada's resource-based currency, and this could continue for a period of time. While no one knows when the slide will end, Saudi Arabian officials are suggesting their campaign to maintain steady production levels at the expense of lower prices will not end. Equityclock.com shows the Canadian dollar's period of seasonal strength beginning in the month of April and lasting through the month of May, which may be a source of support.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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