The Canadian dollar took a break after breaking under the critical line of 1.3460, but this break has been broken by a one-two punch.
At 1.3370, Dollar/CAD is already 1300 pips from the highs of January and coming full circle to the levels seen in late 2015.
Here are three reasons for the fall:
- USD sell-off: the ISM Non-Manufacturing PMI was OK on the headline but the employment component showed contraction. The move actually began with a confirmation of Markit’s services PMI which came out at outright contraction on the headline. The services sector is the largest in the US, so this is worrying. The US dollar is weakening across the board
- Oil breaking higher: WTI Crude Oil is trading above $35 in what seems like a continuation of the short squeeze rather than a reaction to reality: crude oil inventories continue rising even if production may be beginning to slow. For Canada, this is great news. $35.25 was the high and now we are seeing a small slide.
- Canadian strength: Canada is not only about oil exports. A report released earlier this week showed that GDP grew better than expected in Q4 2015. The good news shows that the economy is more diverse than expected and perhaps that it took advantage of the weak Canadian dollar. Will the strength continue amid a stronger C$? That’s still to be seen.
Here is the USD/CAD chart showing this move. 1.34 turns into resistance, followed by 1.3460. Support awaits at 1.3360.
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