Forex news: USD/CAD: Loonie resistant to downside surprises: CIBC World Markets

on Mar 12, 2014
Updated: Oct 21, 2019

**, Wednesday 12 March:**

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The USD/CAD has so far today continued to fluctuate around 1.1102, the 61.8 percent Fibonacci retracement of the decline from 1.1194 to 1.0955. The currency pair appears to be priced “in line with” US-Canada 2-year interest rate spreads, according to Scotiabank (see left chart below).
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CIBC World Markets economist Andrew Grantham highlights the fact that “even though downside surprises have been prevalent over recent weeks, the [Canadian] dollar has failed to test year-to-date lows” (see right chart above). Grantham believes the market has been willing to excuse the disappointing data “as largely weather-impacted, with the exception of a softer February jobs number”.

The CIBC analyst adds that a below-consensus print of the Canadian Consumer Price Index for February, scheduled for release on 21 March, could renew speculation of a BoC rate cut. “But following that hurdle, the [Canadian] data flow could start to look more positive again, particularly on inflation.”

CIBC expects a pick-up in inflation and stronger exports to support “a mini-revival in the loonie”.
The Canadian investment bank’s technical strategists expect the USD/CAD to consolidate in the near-term within its 1.087-1.125 range, which has confined the currency pair in the past two months.
They argue: “While longer-term charts indicate an eventual topside resolution for USD/CAD, this will likely take some time to play out and several factors still point to a near-term consolidative phase.”

The analysts draw attention to weekly momentum indicators signalling waning bullish momentum for the pair, “with RSI exiting the overbought territory while a bearish MACD crossover appears imminent”. Short CAD positioning, they note, “is already heavily stretched”.
Additionally, the analysts point to the pair’s “impulsive” upswing in October-January, which they see as largely driven by a market that was pricing in rate cuts by the Bank of Canada and “this no longer appears to be the case”.


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