Canada Markets

Canadian Dollar Poised to Test 2016 Low

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar has lost 157 basis points against the USD on Wednesday, while has weakened 309 basis points so far this week. Wednesday's low was only 22 basis points from testing the dollar's January 2016 low. The lower study shows investors turning net short in their Canadian dollar futures holdings as of March 10, the first net short held since June 2019. (DTN ProphetX chart)

The U.S. dollar has been the go-to currency as investors look for safety during the global uncertainty faced, a time when even traditional safe havens such as gold are being punished.

U.S. dollar strength, along with the crude oil weakness linked to the global trade war started by Saudi Arabia, as well as the general unease as the Canadian economy slows due to the actions taken to slow the coronavirus spread, have weighed heavily on the Canadian dollar exchange with the USD.

The spot dollar has gapped lower in each of the past two sessions, and is poised to close lower for a fourth straight week with a loss of 309 basis points seen so far this week. Wednesday's low came within 22 basis points of testing the $0.68296 CAD/USD low reached in the week of Jan. 18, 2016.

It makes you wonder how currency traders will react to this move. During the week of Jan. 18, 2016, investors held a bearish net-short position of 66,386 contracts, which is seen on the red bars of the histogram on the lower study. This compares to the 1,990 contract bearish net-short position held as of March 10, the first bearish position held since the month of June 2019, or 37 weeks.

A breach of the 2016 low would see the loonie dip to its lowest point since April 2003, which would be consistent with the move seen in crude oil that saw an 18-year low reached on Wednesday. Potential chart support on the weekly chart will lie in the range from $0.6189 CAD/USD and $0.6252 CAD/USD reached from January to August 2002.

While the current global economy is facing unprecedented times as countries attempt to slow the advance of the coronavirus, it is interesting to note that the stochastic indicators on the weekly chart have not tended to linger in oversold territory for long. For example, following the 2016 low of $0.68296 CAD/USD reached in the week of Jan. 18, a high of $0.79866 CAD/USD was reached in the week of April 25.

This time could be different as coronavirus fears collide with the global trade war started by Saudi Arabia announcing a hike in crude oil production and a drop in offering prices starting in April.

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

Follow him on Twitter @Cliff Jamieson

(ES)

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