Fundamental Forecast for CAD: Near-Term Neutral
- The Canadian Dollar hit a near three-month low against the USD recently.
- Improving oil backdrop and lower US rates may see the Loonie garner a bit more strength.
- Check out the DailyFX Economic Calendar and see what live coverage of key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.
USDCAD has been pretty much a one-way bet in the last year, rising from around 1.2600 in early May 2016 to a 1.37940 high last week, on a combination of trade fears with the US, a lower oil complex and expectations of higher US interest rates. In the short-term a pullback may be on the cards as the strength of the US economy comes under question while oil prices have jumped off their lows.
The latest US inflation data missed expectations, with year-on-year CPI rising by 2.2%, against expectations of 2.3%, while US retail sales came in at 0.4% in April against expectations of 0.5%. While markets are still heavily pricing in a June interest hike of 0.25%, the latest batch of data may stay US Federal Reserve Chair Janet Yellen’s hand looking into the second-half of 2017.
Oil prices have also picked-up after their recent heavy falls with US Crude around $48/brl compared to its May 4 nadir of $43.97/brl.
Spot USDCAD currently trades around 1.37065, just above its 20-day moving average of 1.36387, while a break below the May 5 low of 1.36424 could open the way to the March 9 high of 1.35351. While the Loonie may fall further out, there may well be better levels to open short positions.
Chart: USDCAD Daily Time-Frame (January 16 – May 12, 2017).
And the latest IG Client Sentiment Indicatorsalso show a mixed picture.
Retail trader data shows 27.3% of traders are net-long with the ratio of traders short to long at 2.67 to 1. In fact, traders have remained net-short since Apr 18 when USDCAD traded near 1.33247; price has moved 2.8% higher since then. The number of traders net-long is 5.6% higher than yesterday and 8.0% higher from last week, while the number of traders net-short is 3.3% lower than yesterday and 29.7% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed USDCAD trading bias.
--- Written by Nick Cawley, Analyst.
To contact Nick, email him at firstname.lastname@example.org
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