CIBC World Markets Monthly FX Outlook suggests the worst is behind us in terms of Canadian dollar depreciation against its U.S. dollar counterpart. It cites the bottoming of oil prices, the reduced odds of a U.S. interest rate hike, as well as the federal government's commitment to infrastructure spending with aims to inflate the economy. In addition, Thursday's commentary suggests a lesser chance of an interest rate cut in Canada, also viewed as supportive.
The loonie achieved a sharp move higher Thursday of almost a full cent, while reaching an 11-week high on the nearby March contract. As seen on the attached chart, the move saw the exchange rate move above the contract's 100-day moving average for the first time since mid-October.
Since reaching a $.6809 CAD/USD low on Jan. 20, the market struggled with resistance at $.7297, the 50% retracement of the move from the Oct. 15 high to the Jan. 20 low, between Feb. 4 and Feb. 24. Since moving above this level today, nearby resistance is found at the 61.8% retracement of this same downtrend, found at $.7412 CAD/USD, far from where this market was expected to move, given a Jan. 13 CBC report from an economist suggesting a potential move to $.59 CAD/USD.
The lower study on the attached chart shows the movement of continuous crude oil. While the Canadian dollar bottomed sooner (Jan. 20) than crude, the continuous crude contract diverged from the loonie to reach a low of $26.05/barrel on Feb. 11, although has since rebounded 28.6% to today's high of $33.49/barrel, supportive for the Canadian dollar.
Today's high fell just 1 basis point short of $.74 CAD/USD, while a breach of the $.7412 resistance could result in a further move to $.7463, the 67% retracement of the downtrend in question. The middle study indicates momentum indicators on the current contract are in over-bought territory, leaving the market susceptible to a sudden change in direction.
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