- USD/CAD accelerates its downtrend to 1.3230 lows.
- The Canadian dollar appreciates as oil prices bounce up.
- USD/CAD: loonie’s underperformance set to continue – MUFG.
The US dollar is falling sharply against its Canadian counterpart on Monday, accelerating its reversal from last week’s top near 1.3400 reaching intra-day lows at 1.3230 so far.
Canadian dollar appreciates as oil prices bounce up
The loonie has been unfazed by the broad-based US dollar strength with the USD/CAD depreciating for the second consecutive day. The 2% rebound on oil prices and the unwinding of dollar-long positions ahead of the US election day are weighing on the USD.
Beyond that, market sentiment has improved somewhat on Monday after the strong risk aversion sentiment seen last week. The main equity indexes are posting substantial advances and oil prices have appreciated more than $2, as the positive Chinese factory data and US manufacturing activity have offset concerns about the coronavirus spread.
On a somewhat longer perspective, however, crude prices remain at one-month lows after having depreciated more than 10% over the last two weeks amid fears that the second wave of lockdowns will sink global demand. This is expected to be a burden for the Canadian dollar.
USD/CAD: loonie’s underperformance set to continue – MUFG
The FX Analysis Team at MUFG, however, remains bearish on the CAD: “Year-to-date and half-year-to-date CAD is the 2nd worst performing G10 currency. As we have stated here before, the aggressive stance of the BoC is a reason for us to expect CAD to continue to underperform in the G10 space. The expansion of the BoC’s balance sheet since the COVID crisis began amounts to 20% of GDP, compared to 14% for the Fed in the US and around 17% for the ECB.”
Technical levels to watch
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