Canada Markets

Canadian Dollar Lower, Falling Short of Recent High

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar fell back after reaching a four-week high on Monday, while posted a further loss on Tuesday. Monday's high fell short of testing the July 28 high that was the highest level traded since June 2015. The middle study shows stochastic momentum indicators on the short-term chart having a bearish crossover in overbought territory, while the lower study shows investors paring their net-long futures position in each of the last two weeks. (DTN graphic by Nick Scalise)

The spot Canadian dollar reached a four-week high on Monday of $.80335 CAD/USD, although faced resistance and closed near the lower-end of the day's trading range at $.80044 CAD/USD, dragged lower by weakness in crude oil. Further weakness in crude on Tuesday led to a further pullback in the Canadian currency, closing down 22 basis points at $.79821 CAD/USD. NYMEX crude is down slightly, after nearing a test of support at the 61.8% retracement of the move from the contract's June low to August high at $45.57/barrel.

Monday's high in the Canadian dollar fell just short of a test of the high reached on July 28 at $.80491 CAD/USD, which was the highest level reached in over two years. Should this level be breached, the next level of upside resistance is $.80811 CAD/USD, which is the 33% retracement of the downtrend from the July 2011 high to the January 2016 low. The 38.2% retracement of this same downtrend is calculated at $.82783 CAD/USD.

Besides movement in crude prices and North American Free Trade Agreement negotiation rhetoric, this week's focus will be on Thursday's second-quarter Canadian GDP release by Statistics Canada. The economy grew at a pace of 3.7% in the first three months of this calendar year, while one media pre-report poll is suggesting the same pace of growth in the second quarter, while another is suggesting 4% growth ahead of Thursday's report, which may support the loonie.

At the same time, economists are warning that this pace will slow in the second half of the year. The impact of Canada's first rate hike in seven years with another expected to follow in October, the higher dollar's impact on exports along with further measures to cool the housing market are all expected to work together to slow the economy.

CFTC data, as of Aug. 22, shows investors in Canada's dollar reducing their bullish net-long position for the second straight week to 51,099 contracts as they seek direction in this market. Over time, this group held the largest net-short or bearish position on record, as of May 23, while holding the largest net-long position in over 4 1/2 years, as of Aug. 8.

Given further downside, nearby potential support may be uncovered at $.79674 CAD/USD, the 33% retracement of the short-term uptrend from Aug. 15 to Aug. 28.

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

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