Canada Markets

Canadian Dollar Battered this Week

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar lost 143 basis points this week to reach its lowest level seen since June 2017. The weekly chart shows a break below the 67% retracement of the move from the May 2017 low to September 2017 high, calculated at $.75899 CAD/USD; a continued push lower could result in a slide to the May 2017 low of $.7258 CAD/USD. The middle study shows investors holding a bearish net-short futures position for the 12th straight week, although this position has varied little. The lower study points to a downward trend in momentum, although indicators have failed to reach oversold territory. (DTN graphic by ProphetX)

The spot Canadian dollar faced its toughest week seen since March with a 143-point loss this week, its first weekly loss in three weeks. As seen on the attached chart, the loonie broke through the 67% retracement of the move from the May 2017 low at $.72582 CAD/USD to the 2017 high of $.82634 CAD/USD reached in September, calculated at $.75899 CAD/USD. This is the lowest level traded since June 2017, or in 12 months.

On Friday, Statistics Canada reported disappointing manufacturing sales for the month of April, falling 1.3% from the previous month, which follows gains reported in February and March. A weaker crude oil trade on Friday, partially tied to suggestions that OPEC and Russia will boost oil production, also weighed on the Canadian dollar. This week's United States interest rate hike with the possibility of two more hikes this year is another bearish factor.

A growing list of trade concerns faced by Canada has also led to increased selling for Canada's currency this week. This includes recently announced tariffs on steel and aluminum imposed by the United States along with the threat that this list will grow, Canada's struggle to finalize a North American Free Trade Agreement, Italy refusing to ratify Canada's free trade with the European market (the EU-Canada Economic and Trade Agreement, or CETA). In addition, Japan has blocked Canadian wheat imports linked to the announcement of genetically modified wheat found in southern Alberta last summer, another potential blow to Canada's economy.

A continued move below the 67% retracement could leave the exchange technically vulnerable, with little chart support preventing a further slide to the 2017 low of $.7258 CAD/USD. Two weekly lows from May and June 2017 could act to slow the move, found at $.7393 CAD/USD and $.7396 CAD/USD.

The middle study shows that CFTC data, as of June 11, has investors holding a net-short futures position in the Canadian dollar for the 12th consecutive week. Despite the uncertainty faced, this position has changed little in three weeks as this group treads cautiously.

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

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