The Canadian Dollar Takes Direction From its Central Bank

Talking Points:

  • The Loonie hits a three-month low against the USD.
  • Monetary Policy, not the oil price, drives the recent sharp move.
  • Will the BoC hike rates in 2017?

Fundamental Forecast for CAD: Bullish

The Canadian economy is benefitting from the central banks past policy decisions and pushing ahead, according to commentary from government officials, giving the currency an upward boost, despite lowly oil prices. Earlier this week, Bank of Canada (BoC) governor Stephen Poloz highlighted that interest rates cuts put in place in 2015 “have largely done their work”, a hawkish impulse for the Loonie. In addition, a day earlier, BoC deputy governor Carolyn Wilkins said that the strengthening economy had been largely driven by a robust labour market, another hat-tip to prior monetary policy decisions.

And the Loonie rally happened despite the oil market hitting multi-weak lows, a move that would in the past have sent the Canadian dollar spinning lower. US Crude trades around a six-week low of $44.85/brl while Brent is close to levels least since the start of May at $47.40/brl.

From a technical stance, the Canadian dollar rally against the USD has more to go after USDCAD saw a ‘death-cross’ appear on the charts. The 20-day moving average moved below the 100-day ma, normally a trend-changing signal and highlighting potential ongoing USD weakness against CAD.

Chart: USD/CAD Daily Time-Frame (March2 – June 16, 2017)

The Canadian Dollar Takes Direction From its Central Bank

Chart by IG

The USDCAD low of 1.31648 looks likely to be re-tested in the near-term, leaving the January 31 low of 1.29687 vulnerable.

A look at the IG Client Sentiment Indicator also shows retail traders are still net-long of USDCAD, a signal that the pair may fall further.

The Canadian Dollar Takes Direction From its Central Bank