Fundamental Forecast for CAD: Bearish
- Canada’s Dollar Strengthen on Crude Oil's Turnaround of 20%+ in 1-week, which shows few fundamental factors sustaining the rally.
- Canadian Dollar Likely to Gain further versus US Dollar per the Speculative Sentiment Index
- Canadian Dollar Strength Best Plaid through Bearish EUR/CAD As Markets Digest Draghi’s Comments & Crude’s Bounce
Steven Poloz’s refrain of a Bank of Canada rate cut that had become the preferred bet as the Loonie dropped brought a magnificent reversal for the CAD. However, toward the end of the week, the CAD rally stalled and CAD-crosses looked to oil for direction. For a majority of the week, a ‘Dash for Trash’ in Oil assets seemed sustainable as news of a coordinated global oil production cut appeared in the making. However, on Thursday, the news became obvious that such a plan was unlikely to develop, and the elusiveness of such a plan made Oil and, therefore, CAD unable to hold gains. One oil trader, Gerrit Zambo of BayernLB stated, “Don’t think there are many experienced people that really think Russia or Saudi Arabia would considerably cut production as long as they have the possibility to sell into the market,”
Suggested Reading: Oil Collapse Driven by Panic; Is CAD at a Policy Turning Point?
The Canadian economy did show growth for the first time in three months when the government released GDP on Friday morning showing 0.3% MoM. This growth was a glimmer of good news because the global economy continues to show weak growth. A notable print last week was the pitiful durable good number in the United States that showed a 5.1% drop in orders for durable goods. This poor print affirmed the U.S. manufacturing sector susceptibility to global headwinds.
Next week, we’ll have two key points to take the temperature of the Canadian economy in an environment where commodities remain at depressed prices. Canadian Manufacturing PMI & Unemployment will be looked at to see if there is a sense of positive momentum from the GDP print last Friday.
From a sentiment perspective, we've seen traders through our speculative sentiment index or SSI fighting the latest move as USD/CAD has dropped. This move represents a substantial shift in retail forex trader positioning, which warns that the USD/CAD may have set an important top. Our data shows there are currently 1.3 open retail short positions in the USD/CAD for every one that is long; 43% of traders are long. As you can see on the # of bullish & bearish orders below, this represented a notable swing from three weeks ago when that ratio exceeded 4 to 1.