Canada Markets

Canadian Dollar Falters for Third Straight Week

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The spot Canadian dollar broke lower this week from a channel traded since late August. It's testing retracement support, as well as support from a chart gap created in Sept. 12 trade. When Friday's CFTC data is considered, noncommercial traders have pared their bearish net-short position in the loonie for four consecutive weeks (lower study). (DTN ProphetX Chart)

The Canadian dollar showed an interesting move on Friday, ending 22 basis points lower at $0.76243 CAD/USD while reaching its lowest level in five weeks. This move is despite weakness in the U.S. dollar index and a higher close in crude oil, while Business News Network placed the odds of a Canadian rate hike next Wednesday at 93%, or almost a sure thing in the eyes of economists. Reports released by Statistics Canada -- August retail sales and the consumer price report -- both included weak economic data on Friday.

As seen on the attached chart of the spot Canadian dollar, the CAD/USD exchange rate on Thursday broke lower from a channel that has governed trade since early September, and extended those losses in Friday's trade. Technical analysis theory suggests that such a breakout could lead to a target set, given a continued move that equals the width of the channel, which in this case would suggest a possible move to $0.75 CAD/USD.

Potential support lies at $0.7621 CAD/USD, the 61.8% retracement of the move from the June low to Oct. 1 high. As well, support may also be found at $0.7618 CAD/USD, the lower-end of a gap in trade formed on Sept. 12. Other weekly lows that could lend chart support are found at $0.7569 CAD/USD, the September low, and $0.7532 CAD/USD, the July low.

While not shown on this chart, the lower study shows the CFTC's noncommercial net position in the Canadian dollar. The addition of Friday's data would indicate that this group of speculators have pared their bearish net-short position in the Canadian dollar for the fourth straight week, as of Oct. 16, to 11,019 contracts, the smallest net-short position seen in 30 consecutive weeks of holding a net-short position.

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

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