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Canadian Dollar Forecast: USD/CAD Breaks Down. Will it Fall Further?

Canadian Dollar Forecast: USD/CAD Breaks Down. Will it Fall Further?

Peter Hanks, Strategist

USD/CAD Price Forecast:

  • USD/CAD slipped to a fresh yearly low Tuesday despite jawboning from the Bank of Canada Governor
  • Recent losses have extended the pair’s significant decline since March and left USD/CAD on a steep downward trajectory
  • With jawboning from BOC Governor Macklem and an upcoming FOMC rate decision, USD/CAD could undergo significant volatility
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Canadian Dollar Forecast: USD/CAD Breaks Down. Will it Fall Further?

USD/CAD broke lower Tuesday, falling to levels not seen since April 2018. Recent losses have seen the pair extend its sharp decline since late November and its broader weakening since March. Widespread USD weakness and modest Canadian Dollar strength have combined to create a longer-term downtrend for the pair that now threatens to extend into the New Year.

Canadian Dollar (USD/CAD) Price Chart: Daily Time Frame (January 2016 – December 2020)

usdcad price chart

Before doing so, however, USD/CAD will have to negotiate the looming FOMC decision. Given the pair teeters on the brink of oversold territory and market expectations for the Federal Reserve are rather lofty, USD/CAD could undergo consolidation in the shorter-term. That being said, little has changed in the fundamental landscape up to this point and until it does, the longer-term trend will likely remain lower.

USD/CAD Price Chart: 4 – Hour Time Frame (August 2020 – December 2020)

usdcad hourly price chart

Early areas of resistance in the event of a pullback may reside just south of the 1.2800 level and subsequently along the declining trendline drawn off the September and November lows. Since fresh lows are suggestive of persistent weakness, a shorter-term pullback might allow for renewed bearish positioning.

USD/CAD MIXED
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -10% -10% -10%
Weekly -2% 5% 0%
What does it mean for price action?
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Further still, IG client sentiment data reveals retail clients remain net-long USD/CAD. The number of traders net-long is 10.83% higher than yesterday and 0.96% lower from last week, while the number of traders net-short is 3.01% lower than yesterday and 10.62% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.

--Written by Peter Hanks, Strategist for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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