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Canadian Dollar Rate Forecast: CAD Rides Commodity Boost

Canadian Dollar Rate Forecast: CAD Rides Commodity Boost

Tyler Yell, CMT, Currency Strategist

Canadian Dollar Rate Forecast Key Takeaways:

  • USD/CAD Price Forecast: Approaching 200-DMA AT 1.2632, may drop further on a close below
  • Loonie is finding support on recent sanctions that are set to strengthen commodity prices
  • IG UK Client Sentiment Highlight: Retail activity jumps, bias from sentiment mixed

Let the good times roll. At least, that’s likely the view of Canadian Dollar bulls. On Monday, the Bank of Canada Business Outlook survey outlined a bevy of reasons for traders to continue favoring CAD appreciation with support from commodity prices.

See the strength arising in Commodity FX in our most recent FX Overbought/ Oversold Report

CAD Bulls Look to Have a Spring In Their Step

The Bank of Canada Business Outlook Survey showed one of the highest readings in 17 years, and was complemented by China’s President, Xi Jinping who struck a conciliatory tone to recent trade war rhetoric and helped support risk sentiment.

Additionally, a handful of sanctions are hanging over the commodity markets that could provide a supply shock that is being seen as a positive for the price of crude oil & aluminum. These components are also being supported by comments from PM Trudeau who has said that NAFTA progress has been significant. Putting these together, you can begin to see why the Canadian Dollar is one of the stronger currencies in the G10 as of mid-April.

Option Traders Begin To Price In Canadian Dollar Strength

Looking to the options market for insight, implied volatility is moving higher with the April 18 Bank of Canada meeting bringing the 2-week volatility levels higher. The fixed income market has pushed up their anticipation of USD/CAD volatility over multiple tenors, which looks set to also favor Canadian Dollar strength as risk-reversals over one-month, an options metric showing the ratio of premium being paid for upside or downside protection is showing the biggest downside premium in two months.

In other words, CAD options traders are willing to pay the largest premium to protect against Canadian Dollar strength in two months.

The Commitment of Traders Report Also Shows There Could Be CAD Buyers on the Sideline

Technical Focus on the Canadian Dollar – USD/CAD Pressing Below 200-DMA

Once again, the Canadian Dollar failed to find new sellers and USD/CAD looks unwilling to trade near 1.3000 for any significant period of time. The USD/CAD rate has since moved lower with an oversold RSI(3) reading that favors bearish momentum and looks to the 200-DMA at 1.2632 as new key support. A breakdown below the 200-DMA would turn focus to 1.2400 and 1.2250.

USD/CAD Daily Chart: Set For Breakdown Toward 1.2400/2250

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Chart Source:Pro Real Time, IG UK Price Feed. Created by Tyler Yell, CMT

Unlock our Q2 forecast to learn what will drive trends for the US Dollar

Valuable Insight from IG Client Positioning for

USD/CAD: Retail activity jumps, bias from sentiment mixed

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Data source: IG Client Positioning

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 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.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

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