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  • USD/CAD is currently trading at 1.3443, a touch off the lows at 1.3439 and down from 1.3479 as oil prices perk up.  
  • WTI is stablising below trendline support but bulls are holding above the 200-D SMA which guards against a full-on breakout to the downside at this juncture.  

The Loonie is correlated to the oil market given Canada’s economic dependency of the market where the exportation of crude oil itself represents 10% of total Canadian exports. The price action of late has been centred around the geopolitical environment surrounding the U.S. and Iran’s relationship. The Trump administration seeks to impose a worldwide embargo on Iranian oil in a plight to cut off Iran’s ability to support Hezbollah and Houthi fighters, as well as to send aid to governments in Syria and Venezuela.

WTI bulls have ridden the rise in oil all the way from $42 bbls to the top end of the $66bls handle without much interruption in its ascent since the turn of the year and a major contributor to the price’s northerly trajectory has been the OPEC accord. In the same vein, following Trump’s demands that OPEC should raise output to soften the impact of U.S. sanctions against Iran, the price of oil has stabilised which has given some support to the Loonie in recent trade.  

A dovish Poloz to curb CAD’s correction?

The next domestic factor for traders of the Canadian dollar this week will be in what Poloz says in parliament. The tone of the communique last was decidedly dovish. The outlook had softened since the January MPR. A repeat of some of the key aspects could be enough to curb the Loonie’s correction.

The key takeaways were:

  • Trade tension staying a very prominent risk factor in the Bank’s global assessment although the offset fell back on oil prices which have been rising steadily, contributing to that recent uptick in CPI inflation.
  • However, the BoC still expects inflation to remain around 2% between 2020 and 2021.  
  • Also, the bank regards the employment growth picture as solid enough to support household spending.
  • The Bank made key tweaks to their forward guidance, removing the reference to “the timing of future rate increases”. Instead, the BoC guidance states that it “will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive”. So the bank no longer has a hiking bias.  
  • It will likely all boil down to the price of oil and the performance of the greenback following this week’s FOMC, ISM manufacturing and considering the implications from last week’s dubious GDP beat. The market is heavily positioned long of the dollar and it may not take much to correct the trend, in favour of a lower USD/CAD in the near term  – especially if the price of oil holds up. Anything to the contrary will open the case for the 1.36 handle.  

USD/CAD levels

Eyes are on the 61.8% Fibo (1.3435) of which the bulls need to defend with conviction or risk the price running back into the symmetrical triangle and testing the 50% Fibo (1.3365) and bulls commitments lower down. However, the broader bullish channel of which the downside was recently exhausted is dominant. If the price continues to abide by the rules, bulls should stay on course to test, 1) the late Dec highs through 1.36 the figure and b) the top side of the ascending channel’s resistance at the 127.20% Fibo extensions of the range located at 1.3820.