Canada Markets

Canadian Dollar Close to 10-Month Highs

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar gained a little more than one basis point to close at $.77648 CAD/USD on Monday, holding above resistance but failing to test Friday's high. The blue bars on the lower-study histogram shows investors paring their net-short position in the Canadian dollar for the sixth straight week as of July 4. (DTN graphic by Scott Kemper)

Friday's positive jobs data along with expectations that the Bank of Canada will announce its first interest rate hike in seven years on Wednesday continues to support the Canadian dollar against its U.S. dollar counterpart, which has already gained 7% from its May 5 low to Monday's $.77648 CAD/USD close.

Friday's Statistics Canada jobs report shows the country adding 45,000 jobs in the month of June, which led to a higher close on Friday, although traders may take note that 82% of this total was part-time positions. The Globe and Mail reports that seasonally adjusted on an annualized basis, 400,000 jobs have been added in the past year, a level not seen since 1979. "It's absurdly strong," Scotiabank economist Derek Holt noted, "and the Bank of Canada's recent business outlook survey has CEOs saying they expect to continue hiring at a decent pace over the coming year."

Reuters reported Monday that the financial markets have fully priced in a .25% hike by the Bank of Canada, while pointing to an 80% chance of a second hike by December.

The attached chart shows the Canadian dollar printing a bullish, outside-day trading bar in Friday's trade, breaking above retracement resistance at $.77462 CAD/USD, which reflects the 67% retracement of the move from April 2016 high to the May 2017 low. While Monday's trade shows consolidation within Friday's trading range, the rate held above this resistance, which could point to a potential continued upward move to a test of the 2016 high at $.79866 CAD/USD.

The middle study points to stochastic momentum indicators, which are deep in over-bought territory and could weigh on further technical buying interest. At the same time, the lower study shows how investors have pared their bearish net-short position for six consecutive weeks to a net-short of 39,372 as of July 4, the smallest in 11 weeks. As of the week ended May 23, investors held the largest net-short or bearish position on record of 99,109 contracts. Further liquidation of this position could be the supportive feature needed to sustain the move higher.

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

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