Canada Markets

The Canadian Dollar Breaks Lower

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar has broke lower on Aug. 17 while closing below its 200-day moving average for the first time since July 20. Potential support is seen at $0.7831 CAD/USD, the 33.3% retracement of the move from the March 2020 low to the June 2021 high. The lower study shows a modest noncommercial net-long position in the Canadian dollar for a third week, while the size of this position has fallen for the fifth time in six weeks. (DTN ProphetX chart)

Global uncertainty has led to a rush to safety in the United States dollar, while a fourth consecutive lower close in crude oil has also contributed in Canadian dollar weakness. This week Statistics Canada reported Canada's wholesale sales falling for the first time in four months, while Canada's federal election has also led to a cloud of uncertainty over the future direction of the country.

The spot Canadian dollar has traded mostly sideways over most of the past month, ranging over 105 basis points from a $0939 low reached on July 28 to a $08044 high reached on July 30.

On Aug. 6, the exchange fell by 34 basis points, breaking below the support of the 20-day moving average. On Aug. 17, a further drop of 33 basis points was seen, with the exchange falling below the 200-day moving average. This is the first close below the 200-day moving average since July 20, which is the upward-sloping brown line that is calculated at $0.7955 CAD/USD

Besides psychological support at $0.79 CAD/USD, potential support lies at $0.7831 CAD/USD, the 33.3% retracement of the move from the 2020 low to the 2021 high. This level was tested and held in the month of July, while a breach of this level could result in a further move to the 38.2% retracement at $0.7759 CAD/USD level.

The blue bars of the lower study shows the CFTC's noncommercial net-long position held in Canadian dollar futures. The speculative side of the trade has held only a modest net-long over the past three weeks, with a net-long of just 6,465 contracts as of Aug. 10. The size of this position has fallen in five of the past six weeks, while is significantly below the 48,772 contracts held as of June 1.

This week's focus by currency traders will be the Aug. 18 Statistics Canada report on July inflation. BNN Bloomberg reports that economists are expecting inflation increased to 3.4% in July from 3.1% in the previous month, which would be fastest rate of change recorded in 20 years. This could lead to buying interest in the Canadian dollar if expectations sway to the likelihood of higher interest rates ahead.


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