The Canadian dollar plummeted over the course of the last week as the combination of weak oil prices and a massive US dollar rally led USD/CAD to spike.
Canadian Dollar Could Gain On Technical Retracement
Fundamental Outlook for Canadian Dollar: Bullish
- The Canadian dollar plummeted almost 8% last week as commodity prices sold off
- Ivey PMI was stronger than expected at 61.0, suggesting a pick up in business activity
- The Bank of Canada cut rates by 50bps to 2.50 percent as part of a coordinated effort with other central banks
The Canadian dollar plummeted over the course of the last week as the combination of weak oil prices and a massive US dollar rally led USD/CAD to spike. Indeed, risk trends were clearly driving the market in that risk aversion led to commodities, stocks, and forex carry trades to drop while flight-to-safety led the greenback and Japanese yen higher. Given the Canadian dollar’s correlation with oil, the currency faced significant bearish potential. Indeed, even surprisingly strong employment data couldn’t save the Loonie, as the net employment change jumped 106.9K versus forecasts of a mild 10.0K rise. This was the best reading since record-keeping began in 1976, and suggests that Canadian domestic demand should remain robust through the end of the year.
Looking at the daily charts, the absolutely massive wick at the top of Friday’s daily candle may suggest that the USD/CAD rally could run out of steam. This week, there is limited event risk out of Canada as only Manufacturing Shipments for the month of August will be released on Thursday, which would be in line with the August Ivey PMI result. Nevertheless, risk trends will likely be a better gauge of where USD/CAD goes next as a recovery in oil prices, along with dollar selling could easily allow the Canadian dollar to recoup some of its losses.