USD/CAD broke above the all important 1.01 level that was a stubborn cap in January, and is now advancing higher within the wide uptrend channel.
- Housing issues: There was an argument if the Canadian housing market experienced a bubble and is now bursting. While is debate is still open, there is more evidence that prices are falling. Prices in Toronto, which was the hottest market, have fallen by 6% year-over-year according to the Toronto Real Estate board. The housing market is probably the most significant weight on the loonie’s shoulders. For more, see C$ – housing vs. all the rest.
- Less hawkish central bank: the Bank of Canada has been relatively hawkish in a world of easing. However, recent statements have been more dovish. So, the loonie loses one of its strengths.
- Improvement in the US: While not all is rosy in the US, the general picture is of growth in GDP and in jobs. US demand has usually supported the Canadian dollar, the recent changes in FX correlations have led to a stronger greenback versus the loonie on hopes that the open-ended QE programs will reach an end some day.
The break above 1.01 seems serious. The next significant level is 1.02, which was the 2009 trough and has had a role since then. 1.0250 is the next level, followed by 1.03. On the downside, 1.0066 provides support before parity.
In the bigger picture, USD/CAD has been trading in a wide uptrend channel (black lines on the chart): uptrend support began in mid-January, and was formed later in the month. Uptrend resistance began in December and was formed in mid-January.
For more, see the Canadian dollar forecast.Get the 5 most predictable currency pairs