USD/CAD Headed for 1.35?

USD/CAD Headed for 1.35?

USD/CAD Headed for 1.35?

USD/CAD climbed to its strongest level in 10, almost 11 years today on the back of falling oil prices, the prospect of a National Election and a surprise contraction in GDP growth in the month of May. Oil prices dropped as much as 3.5% today, taking WTI crude close to $45 a barrel. This decline will have a dramatic impact on Canada’s economy and could even prompt the central bank to lower interest rates. Over the weekend Prime Minister Stephen Harper also called for an election on October 19th. This election comes against a backdrop of an “uncertain and unstable” economy at a time when the currency is very weak. While we believe that the Conservatives will remain in power, political uncertainty is rarely good for a currency. Over the past 3 months, the Canadian dollar lost over 7% of its value against the greenback making travel and trade between the U.S. and Canada the cheapest since 1994. In the long run, this will be very positive for Canada’s economy but in the short term, the decline in the currency and the more than 20% drop in oil prices means further gains for USD/CAD. Fundamentally, we believe USD/CAD has the drivers for a move towards 1.35.

Technically the rally in USD/CAD could stop just short of that at 1.3475, the 61.8% Fibonacci retracement of the 2002 to 2007 meltdown. The uptrend in USD/CAD remains intact as long as the currency pair holds above 1.38.

Chart Of The Day

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