Canada Markets

Canadian Dollar Reaches Five-Week Low

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar will likely show losses of over 1 cent in the first two days of trade this week, after breaking support last Monday from an upward-sloping trend line in place since a Dec. 28 low. Tuesday's move reached a five-week low. The lower study shows the weekly CFTC data in histogram form, with Feb. 21 data showing investors holding the largest bullish net-long futures position in the loonie since May 2016 at 24,584 contracts. (DTN graphic by Scott R Kemper)

It did not take long for traders to forget about last week's higher-than-expected Canadian inflation data, while Tuesday's focus seems to center on President Trump's speech to Congress on Tuesday evening along with the Bank of Canada's interest rate decision to follow on Wednesday. Some nervousness continues to weigh on the market since Bank of Canada Governor's January statement that did not rule out the possibility of an interest rate cut.

Today's move saw the March Canadian dollar break through the support of the 50% retracement of the move from the Dec. 28 low to the Jan. 31 high at $.75375 CAD/USD. A further move lower could lead to a test of the 61.8% retracement of the same uptrend which is found at $.74957 CAD/USD and would be the lowest level traded in six weeks.

The histogram on the lower study shows investors holding a net-long position of 24,584 contracts as of the CFTC's Feb. 21 data, which has risen for four consecutive weeks to the highest level seen since May 2016. One could question a possible correlation to the crude oil market, with investors or speculative traders holding a record bullish net-long position of 556,607 contracts (not shown). Today's headlines suggest that Saudi Arabia is targeting $60/barrel this year, while compliance in the organization's production cuts are suggested to be at a high 94% and bets are already being placed that the cuts will be extended later in the year.

As a result, the potential for higher crude prices may be directly linked to increased optimism surrounding the Canadian dollar by investors. The net-long position for crude oil has increased 183.5% since Dec. 1, while over that period, investors moved from a net-short position in the Canadian dollar of 21,869 contracts to a net-long of 24,584 contracts. This leaves both markets vulnerable to a sudden sell-off should investor's opinions change for any reason.

Wednesday could be an interesting day for currencies, with President Trump's wording over issues related to trade, his preferences for the direction of the United States currency, potential infrastructure spending along with potential commercial tax cuts being closely watched by the world.

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

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