Canada Markets

Canadian Dollar Nears a Six-Week High

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar gapped higher for a second day on March 17, pushing through its 50- and 100-day moving average while nearing a test of the March high. Nearby resistance is at $0.7923 CAD/USD, the 61.8% retracement of the move from the January high to March low, while a breach could lead to a move to $0.7937 CAD/USD, the 66.7% retracement. As of March 8, investors held the smallest net-long futures position seen in seven weeks. (DTN ProphetX chart)

The Canadian dollar gained 49 basis points to close at $0.7910 CAD/USD on March 17.

From Jan. 27 to Feb. 22, the Canadian dollar traded over an 89.5-basis-point range in a sideways move, while this range expanded to 161 basis points in trade from Feb. 23 to March 16.

March 17 trade formed bullish gap higher for a second consecutive session, pushing through the 50-day moving average at $0.7884 and the 100-day at $.7889 CAD/USD, as well as the 50% retracement of the move from the Jan. 20 high to March 8 low at $0.7891 CAD/USD. The dollar's high on Thursday came 2 basis points from testing the March high of $0.7915 CAD/USD, while a breach of this high would represent a six-week high. This move was supported by a significant move in crude oil prices on Thursday.

The Canadian dollar is currently poised to close higher during the week (up 52 basis points through Thursday's close), while crude oil may be poised to close lower during the week (down $6.35/barrel during four days of trade). This week could be the third straight week that crude oil futures and the spot Canadian dollar have diverged. In the week of Feb. 28, the Canadian dollar weakened as Nymex crude strengthened during the week, while in the two weeks since, the loonie gained strength against the USD during each week (assuming current gains are held in March 18 trade) while crude oil closed lower during the week (assuming that current losses are sustained this week).

Resistance is seen at $0.7915 CAD/USD, the March high, as well as $0.7923 CAD/USD or the 61.8% retracement of the move from the January high to March low. A breach of this level could lead to a continued move to the 66.7% retracement at $0.7937 CAD/USD.

The blue bars of the histogram in the lower study shows the net-long Canadian dollar futures position held by investors. The most recent data is for March 8, which showed this group paring this position for fourth time in five weeks, while the surge in crude oil prices since the start of the Ukraine-Russia war has done little to support the bullish argument for the Canadian dollar so far.

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