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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.
How Low Can Loonie Go?
Oil dropped another 5 dollars today hitting a low of $46/bbl and dragged loonie to fresh lows as USDCAD soared through the 1.2000 and 1.2100 levels. The pair is now at highs not seen in 6 years and the key question is can it rise further? Of course the main driver will be oil – which is a key component of the Canadian economy especially in the western part of the nation. However although oil continues to drip lower its rate of decline has slowed and it looks like it may find a bottom in the mid 40’sb for now. If oil can stabilize the loonie is due for a bounce, especially if the BOC meeting tomorrow reveals no new policy initiatives. If however the BOC does something unexpected like lower rates all bets are off and USDCAD can climb to 1.2500
Technically, USDCAD has made a clean break out today, but on longer term charts the 1.2000 level was former support so it could prove to be new resistance. Still only a break below 1.1800 would disrupt the bullish bias in the pair