Canada Markets

Canada's Dollar Reaches Highest Level Since September

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Canada's spot dollar trade against the U.S. dollar rose to its highest level since September in Tuesday's trade, while it is struggling with resistance of the 50% retracement of the move from the April high to the December low, calculated at $.76736 CAD/USD. The lower-study shows investors holding a net-long position in the Canadian dollar as of Jan. 24 for the first time in 18 weeks. (DTN graphic by Nick Scalise)

Farm Credit Canada says to watch the loonie in 2017, as it "could easily have the largest impact of all possible trends and drivers on the profitability of Canadian agriculture and agribusiness throughout the year." While prudent advice, signs are pointing to the need to buckle up for what could be a wild ride in 2017.

Opinions are varied over the next moves made by the new United States administration and the impacts to follow in the Canadian economy. Bank of Canada governor Stephen Poloz told an Edmonton audience on Tuesday that it is too soon to model how trade agreement changes will affect the country, while suggesting it will remain challenging even after the details are known.

Business News Network clips today suggest Canada is at risk of "extreme outcomes" should the U.S. move ahead with protectionist measures, while another suggests the Canada's economy may be "roadkill."

While a weaker dollar is not only favorable for Canadian agriculture, it is a goal of the Bank of Canada in order to boost the country's exports and revive the country's economy. A BNN interview points to a perfect storm of events which could lead to a much lower Canadian dollar trade: 1) expectations of gradual rate hikes in the U.S. over the balance of the year 2)U.S. stimulus spending and 3) potential protectionist actions to support the "America first" promise.

Canada's currency ended the month of January by reaching a 21-week high to the highest level seen since Sept. 9 at $.76965 CAD/USD. A combination of U.S. dollar strength, a slightly higher close in crude oil prices along with Statistics Canada's report showing real GDP increasing .4% for November, the fifth increase reported in six months, helped push the Canadian dollar higher. While not shown, the monthly chart shows the 235-point move higher in January was the first higher monthly close in four months while the largest monthly move higher seen in nine months.

As seen on the attached chart, the current exchange rate has held above the 200-day moving average at $.76307 CAD/USD for a second day on Wednesday, which has proved a challenge since mid-December (horizontal green line). As well, the close on Tuesday above retracement resistance at $.76736 CAD/USD (horizontal blue line), the 50% retracement of the move from the dollar's April high to the December low, led to a lower close below this level on Wednesday. This level remains as nearby technical resistance.

Nearby support may be found at the 200-day moving average at $.76307 (previous resistance potentially turned to support) and $.75856 CAD/USD, the 33% retracement of the move from the December low to the January high. An extremely bearish situation could evolve if the rate takes out the double-bottom reached in November at $.73632 and December at $.73605.

The lower-study shows investors betting on the Canadian dollar, with January 24 CFTC data showing this group holding the first net-long position seen in 18 weeks at 2,519 contracts. Time will tell if this group sustains this sentiment, although the middle study points to momentum indicators moving in to overbought territory, which may slow technical buying interest.

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DTN 360 Poll

This week's poll asks the question:

With the Canadian government bracing for potential barriers to trade with the United States, what area of the agriculture industry do you think is the most vulnerable?

You can weigh in with your thoughts on this week's poll, found at the lower-right side of your DTN Home Page.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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