Canada Markets

The Canadian Dollar Rally Is in its Ninth Month

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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After reaching a low in March, the spot Canadian dollar's rally is in its ninth month, with the next upside target at $0.8081 CAD/USD, the 33% retracement of the move from the 2011 high to 2016 low. The lower study shows investors holding a bearish net-short futures position during the 2020 rally. (DTN ProphetX chart)

The spot Canadian dollar closed 39 basis points higher against the U.S. dollar at $0.7876 CAD/USD this session, reaching its highest trade since the week of April 16, 2018. This marks the fifth consecutive higher daily close while the sixth higher close in seven sessions.

The Canadian dollar has gained considerable strength against the USD due to U.S. weakness since reaching a low of $.6852 CAD/USD in March, which was the weakest trade seen in over four years.

In December trade, this exchange rate has broken above the 67% retracement of the September 2017 high to the March 2020 low at $0.7798 CAD/USD, which has cleared a path for a continued move to the September 2017 high of $0.8263 CAD/USD. Weekly highs on the chart show possible resistance at the April 2018 high of $0.7979 CAD/USD, while a longer-term perspective shown on the attached chart shows the 33% retracement of the move from the 2011 high to the 2016 low at $0.8081 CAD/USD. Psychological resistance at $0.80 CAD/USD may also play a role in capping upside potential.

The lower study shows that Commodity Futures Trading Commission data has reported a bearish net-short position held by noncommercial traders or investors since the 2020 rally began in April. This is not consistent with past rallies, with the rallies beginning in May 2017, January 2016 and March 2009 resulting in a quick move by investors into a bullish net-long position. This bears watching.

According to Thackray's 2020 Investor's Guide, data from 1971 to 2018 shows the Canadian dollar has shown historical weakness in the months of October through December, as well as January. November is typically the weakest month of the year with an average 0.5% loss over this period, while January is the second weakest month with an average 0.3% loss. The Canadian dollar's nearest period of seasonal strength is seen in April, when it tends to show strength along with crude oil. The current move is a counter-seasonal trend for the loonie.

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