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Canadian Dollar Rate Forecast: Trump’s Tough Tariff Talk Drops Loonie

Canadian Dollar Rate Forecast: Trump’s Tough Tariff Talk Drops Loonie

2018-03-01 22:00:00
Tyler Yell, CMT, Currency Strategist
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Canadian Dollar Rate Forecast Key Takeaways:

What a rough month for the Canadian Dollar. February saw the Canadian Dollar lose 7.26% against the Japanese Yen, and 4.59% against the US Dollar. The last month this bad for the Canadian Dollar against the JPY was January 2015 where it fell 10.45%, which was second in the last 10 years to October 2008, when the Canadian Dollar dropped 18.5% in a single month!

Canadian Economy Data Heats Up with GDP & Bank of Canada

While the Canadian Dollar has seen aggressive moves, traders should be aware of the busy schedule ahead. Friday will show us CA GDP, and next Wednesday will be the Bank of Canada’s rate announcement.

Always one to steal the thunder, the recent volatility in the Canadian dollar has been attributed to US President Donald Trump’s tough tariff talk. The rattles have caused options traders to pay a premium in the coming week and month to protect against outside CAD losses compared to outsized gains to both the JPY and USD.

The tariff sanctions to protect (i.e., protectionist policies) are said to be focused on

steel and aluminum. On the surface, many would likely see, and be correct in interpreting as such that this is a shot toward China. However, Canada is the biggest foreign supplier of US steel per Bloomberg so such sanctions could deteriorate NAFTA talks further.

Technical Focus on the Canadian Dollar

Traders will likely first notice that the Canadian Dollar is reaching a level where since October, the bleeding has stopped. This means that what happens next could be paramount for the pair’s direction.

USD/CAD Daily Chart: Higher Into Key Resistance (1.2916-1.2807)

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Chart Source: IG Charting Package, IG UK Price Feed. Created by Tyler Yell, CMT

USD/CAD is coming into a critical level of resistance that can be seen as CAD support near 1.2807/2916. Momentum would favor a breakout higher, which would like signal a regime shift toward a stronger USD, at least against commodity FX.

USD/CAD can look to 1.2580 (50% retracement mark of December-January range,) and 1.2616 (February intraday low) as key support. A hold above this support and subsequent break of pre-mentioned resistance would likely favor a move to 1.2890/1.2928 (100% Fib. Extension and December high respectively) or 1.3161 (161.8% Fibonacci extension off January 31 low.)

Learn about Trading With Fibonacci Analysis

Unlock our Q1 forecast to learn what will drive trends for the US Dollar at the 2018 open!

Valuable Insight from IG Client Positioning for USD/CAD:

Retail selling jumps, bias bullish

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Data source: IG Client Positioning

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDCAD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDCAD-bearish contrarian trading bias.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

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