How Low Can Loonie Go?

How Low Can Loonie Go?

USD/CAD has made quite a turnaround breaking below the 1.3000 support level while leaving loonie bears in the dust. The rally in the pair has been driven by two factors -- the recovery in oil prices which appear to have stabilized at the $45/bbl level and the growing conviction that Fed will NOT hike rates this year.

Yet in the grander scheme of things USD/CAD still remains in a long term uptrend and the recent move lower is very much likely a retrace. The retrace however may not be over just yet. In the prior correction USD/CAD declined by 700 pips before finally finding a bottom which would this present move bottom out near the 1.2500 level which also happens to be a key psychological support level.

Despite the bounce in oil and the halt by the Fed, the long term forces remained allied against the loonie as commodity prices will likely remain depressed for years to come while the Fed will have to tighten sooner rather than later.

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