The spot Canadian dollar settled 23 basis points lower on the final day of October, the fifth lower close in six sessions. The session low of $.720014 CAD/USD was the weakest trade seen in the spot dollar since Oct. 14, 2022, or over one year.
The month of October saw the spot dollar drop 165 basis points, a third consecutive monthly loss. The $.72 low is only 18 basis points above the Oct. 13, 2022, low of $0.718179 CAD/USD. A breach of this low on the chart could result in a full slide to test what could be viewed as a double-bottom, or the $.6830 low reached in January 2016 and the $.6852 low reached in March 2020, although psychological support at $0.70 would also be tested on the way.
According to Equityclock.com, the month of November is normally a weak month for the Canadian dollar. Data for the past 20 years shows an average return of minus .5% for the month of November, having weakened in 60% of the past 20 years. This is tied with January for the weakest month for the Canadian dollar over the 12 months of the year. Over the past 20 years, the maximum gain against the USD was 2.7%, while the largest loss was 5.7%, realized in 2007.
The histogram bars on the lower study indicate the net-futures position held by investors in Canadian dollar futures. This group has increased their net-short position in each of the past two week; at 48,639 contracts net-short as of Oct 24, they are holding the largest bearish position since March of this year. Should investors add to their net-short position in the week ended Oct. 31 as they have over the past two weeks, they will hold the largest bearish position in the loonie since May 2017, or close to 6.5 years.
On Tuesday, Statistics Canada reported the August Gross Domestic product unchanged from the previous month, while the preliminary forecast for September shows the potential for a loss for the third quarter of 2023, a second consecutive losing quarter while signaling the country may have already slipped into a technical recession, or two consecutive losing quarters.
While the U.S. Federal Reserve announced their benchmark rate will remain unchanged this month, risks still exist that a U.S. rate hike would further pressure the Canadian dollar relative to the U.S. dollar.
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