Canada Markets

Spot Canadian Dollar Reaches a 19-Week Low

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar closed 11 basis points higher on Friday after reaching its lowest level traded since Jan. 3. Since late April, the dollar has struggled to gain momentum in either direction, with momentum indicators in the first study moving mostly sideways. The lower study shows that investors have held a steady net-short futures position during recent weeks. (DTN ProphetX chart)

The spot Canadian dollar closed 10.6 basis points higher on Friday, after news that the United States has agreed to remove its steel and aluminum tariffs charged on imports from Canada and Mexico. Canada agreed to remove counter-tariffs, perhaps paving the way for the Canada-U.S.-Mexico (CUSMA) trade deal to be ratified.

This session saw the Canadian dollar strengthen after reaching a low of $0.74036 CAD/USD, its weakest level traded since January 3. The spot Canadian dollar chart points to an area of chart congestion since April 25, with the exchange with the U.S. fluctuating within a 79-basis point range. The first study on the attached chart points to stochastic momentum indicators mostly trading sideways while struggling to reach the middle of the neutral range on the chart.

The red bars of the histogram on the lower study shows investors continuing to hold a bearish net-short position in the loonie, while since mid-April, have held a relatively constant position that range within a few thousand contracts. Not shown is Friday's late release of May 14 CFTC data that shows investors increasing their bearish net-short position in the Canadian dollar to 47,588 contracts, the largest bearish position held in four weeks although by a narrow margin.

Support may have also stemmed from Bank of Canada Governor Stephen Poloz who told BNN Bloomberg that he sees the slowing of Canada's economy as a temporary factor and that "the natural tendency is for interest rates to still go up a bit. I don't really know how much a bit is, and what the timing may be."

Over the course of the week, the Canadian loonie lost 11.6 basis points, its first weekly loss in three weeks, while momentum indicators on the weekly chart are drifting sideways just above the oversold region of the chart. Friday's close recovered to hold above retracement support at $0.7432 CAD/USD, the 67% retracement of the move from the Dec. 31 low to the Feb. 1 high at $0.7648 CAD/USD. A sustained move below this level will require a test of the $0.74 level and could result in a retracement to test 2019 lows.

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