Canadian Dollar Forecast: Key USD/CAD Levels to Watch, Significant Reversal?

CAD Analysis and Talking Points

• USD/CAD | Demand for US Dollar to Continue Despite Pullback
• Oil Prices Remain Skewed to the Downside
• Canadian Dollar Technical Levels

USD/CAD | Demand for US Dollar to Continue Despite Pullback

Equity markets have stabilised this morning, while the US Dollar has seen a modest pullback. However, we see this as a temporary pause in the dollar strength as opposed to a significant reversal. Volatility remains elevated and as long as this is the case, particularly in a recessionary environment then there will be fundamental demand for dollars. That said, the Canadian Dollar has also benefitted from a lift in oil prices after reports that Texas (Largest oil producing state in the US) could curtail oil production for the first time in decades. Although, with the spread of the coronavirus showing little signs of easing up, more and more countries will continue to go on lockdown, thus reduce demand for oil, as such, risks remain tilted to the downside for oil.

The Canadian Dollar is in a precarious situation, not only because of the low oil environment but also due to the fact that the BoC are the only central bank in the G10 that have not lowered interest rates as of yet to 0.25%. We feel this will not last long and therefore are on the lookout for a 50bps rate cut before the April 15th meeting. Keep in mind, the BoC cut interest rates in an unscheduled meeting last Friday.

Canadian Dollar Technical Levels

Much like the rest of the FX space, the Canadian Dollar is trading within a large range (1.4150-1.4500), which is unlikely to change within the foreseeable future and therefore it is important to be nimble within this environment. The pullback in USD/CAD has been initially curbed from 1.4150, while we expect firmer support to stem from the 1.4100 handle. On the topside, near-term resistance is situated at 1.4220, which marks the descending trendline from the 2002 peak. An event to be aware during these times is the London fix at 1600 UK time, which has seen wild swings in major currencies.

USD/CAD Price Chart: Weekly Time Frame

Source: IG Charts

--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX