Canada Markets

The Sept. 29 trade in the spot Canadian dollar saw a bearish outside bar printed on the daily chart, trading both higher and then lower than the previous day's range over a wide 76-basis point range, while closing at the lower-end of the range.

Over the next two sessions, the spot dollar has gapped lower, including today's Oct. 3 session, where the loonie settled 20 basis points lower at $0.729447 CAD/USD. This is the lowest close seen since March 24. This week's move also saw the exchange rate breach the 61.8% retracement of move from the October 2022 low of $0.7181 CAD/USD to the July 2023 high of $0.7629 CAD/USD.

As seen on the attached chart, the Oct. 3 close is nearing a test of an upward-sloping trendline drawn from the October 2022 low. A breach of this support, calculated at $0.728136 could result in a further slide to weekly support at $0.722365 CAD/USD, with the 2022 low next at $0.718197 CAD/USD

As seen in the lower study, investors have held a bearish net-short position in Canadian dollar futures for eight consecutive weeks as of the week ending Sept. 26, although the most recent week's net-short of 32,696 contracts saw this position reduced for the first time in seven weeks.

USD strength is playing a key role in this weaker trend in the Canadian dollar. Statistics Canada's recent report showing gross domestic product in July unchanged from the previous month may have reduced chances of further rate hikes needed to cool the economy which has weighed on the dollar.

The Bank of Canada released a speech today by Nicolas Vincent of the Chamber of Commerce of Metropolitan Montreal that included focus on Canadian businesses and their price-setting behaviour since the pandemic that shows businesses changing prices more often and by greater amounts. "In other words, if recent pricing behaviour settles into a new normal, it could complicate our return to low, stable and predictable inflation."

As a result, the idea of higher rates over an extended period has weighed on equities and has led to growing concern for the economy and has contributed to pressure on the Canadian dollar exchange with the USD. Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow him on X, formerly known as Twitter, @Cliff Jamieson

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