Canada Markets

Canadian Dollar Under Pressure, Finding Support

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar closed lower for a second week, ending down 45 basis points, while reaching its weakest trade in more than 20 months. This week's trade found support at the downward-sloping line drawn from the August 2021 low, as well as the 50% retracement of the move from the 2020 low to the 2021 high. The blue bars of the histogram on the lower study shows investors holding a modest net-long futures position as of July 5, with updated data showing this being pared by a modest amount. (DTN graphic by Cliff Jamieson)

The Canadian dollar closed 42 basis points higher against the U.S. dollar on Friday to close at $0.7673 CAD/USD, in the upper half of the 128-basis point range traded during the week. This week's low reach the weakest level seen since Nov. 2, 2020, while finding support at the lower line of a channel drawn from the August 2021 low at $0.7627 CAD/USD. This exchange also bounced from the 50% retracement of the move from the March 16, 2020 low to the May 2021 high, or $0.7586 CAD/USD as indicated by the green parallel line.

The test will be whether this exchange can continue to hold above support, while a breach of the 50% retracement line could lead to a continued slide to the 61.8% retracement line at $0.7413 CAD/USD, as shown by the horizontal purple line.

The histogram bars on the lower study shows uncertain investors, with noncommercial traders moving from a bearish net-short futures position to a bullish net-long position four times since late August 2021, while the latest week's data (not shown) shows the noncommercial net-long position pared by a modest 788 contracts as of July 12 to a net-long position of 3,505 contracts, the smallest net-long seen in five weeks.

The Canadian dollar tends to face seasonal weakness in the month of August, while then tends to strengthen to a seasonal high in the month of October.

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