USD/CAD—Time to Rethink?

01/12/2016 9:00 am EST

Focus: CURRENCIES

Yohay Elam, of ForexCrunch.com, highlights the current view of CIBC—courtesy of eFXnews—for this currency pair that has reached highs last seen 12 and a half years ago and what this could mean for forex traders over the short- and long-term.

USD/CAD has reached highs last seen in August 2003, 12 and a half years ago, at nearly 1.42. But are we nearing an end of these gains? Here is an opinion from CIBC:

Here is their view, courtesy of eFXnews:

We’ve had a bearish near-term outlook on the Canadian dollar since mid-2014, admittedly one that we’ve had to move the goalposts on several times over the period. Each time we approached our target, we saw every reason for those long the USD against the loonie to retain that position, given the track for commodity prices, interest differentials, and the need for Canada to shift growth towards exports from a long-in-the-tooth housing run.

Once again, we find ourselves closing in on our target, in this case, one set at the magic 70 cent US mark. But this time is different, in that most of what could hurt the Canadian loonie is now priced in. Another rate cut by the Bank of Canada is nearly fully priced into OIS futures. Weak oil, ditto (Chart). True, we’re more hawkish on the Fed than the futures market, a negative for the CAD on its own. But that’s because we’re not as downbeat as the current mood appears to be over US and global economic prospects. For the Fed to hike rates through 1% by yearend, the economic climate would likely have also supported at least some turn in resources, protecting the loonie.

chart
Click to Enlarge

One of those pearls of trading wisdom—warning not to try to catch a falling knife—can often be the case in FX markets. Previous periods of Canadian dollar weakening or strength have sometimes featured a week, or even a day, at a level several cents off the monthly average. So even if the worst is close at hand for the Canadian dollar’s monthly average, day traders going long the loonie could still face a painful loss.

But for those with longer horizons, it might soon be time to rethink. To read the entire article click here…

By Yohay Elam, Founder, Writer, and Editor, ForexCrunch.com

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