USD/CAD sees minor rebound after printing lows since October 2018 under 1.2930

• USD/CAD hit its lowest level since October 2018 below 1.2930 in recent trade, although has since recovered back around 1.2960 since.
• Broad USD weakness has buoyed CAD, with the loonie the best performer in the G10.

Amid broad USD downside, USD/CAD recently printed fresh lows since March 2018 of 1.2926. The pair has since rebounded very slightly back into the 1.2930s, but still trades with losses on the day of over 50 pips or just under 0.5%.

CAD surges to the top spot in G10 performance table

USD/CAD recent advance to the downside has seen the loonie climb to pole position in terms of its performance on the day vs USD compared to other G10 currencies. However, Credit Agricole posit a few reasons to be cautious on CAD going forward, or at least, reasons why the loonie might underperform the likes of AUD, NZD and NOK even in USD weakness continues.

Firstly, the US economy is struggling right now as it copes with a persistently high prevalence of Covid-19, the associated lockdowns and a lack of fiscal aid from Congress. Given the fact that US is by far their most important trade partner, is also likely to impact the Canadian economy negatively, meaning as the US economic outlook weighs on USD, it might also weigh on CAD.

Meanwhile, though oil prices have put in a stunning performance on the month so far this November, Credit Agricole think that the outlook for crude (with which CAD has a higher correlation) is less favourable than for other commodities (on which AUD and NZD have a higher correlation to). This is because 1) the bank thinks global travel is likely to remain subdued for a long-time even after the pandemic and 2) the incoming Biden administration presents a number of bearish factors for oil markets, such as bettering relations with Iran and clamping down on Canadian oil imports. Crude underperformance vs other commodities could directly feed into CAD underperformance vs the likes of AUD and NZD.

Looking ahead for the loonie, GDP data on Tuesday will be closely watched, as will the November jobs report on Friday, though USD/CAD is, as ever, more likely to conform to global risk and USD dynamics and movement in crude oil prices on the whole.

USD/CAD breaks below bearish trend channel

Since about 12 November, USD/CAD had been moving to the south within the confines of a bearish trend channel; to the downside, this trendline linked 16, 18 and 24 November lows and to the upside, it linked the 13, 19, 23 and 24 November highs.

However, USD/CAD broke to the south of this trend channel on Monday to set fresh yearly lows of under 1.2930. The pair has since retraced some of these losses and is now flirting with the lower bounds of this trend channel again in the 1.2950s. If the bears can hold out, a gradual move back lower towards year-to-date lows under 1.2930 is likely. If not, the pair might return back to within the confines of its recent downwards trend channel, in which case the bias would still be towards further likely losses, albeit somewhat more gradually over the coming sessions.

USD/CAD four hour chart