The Canadian dollar has been one of the “victims” of the recent surge in the US dollar. The most recent move sent USD/CAD to the round 1.28 level, which is the 2015 high reached in late January, following the surprising BOC cut.
Will the pair break higher and challenge 1.30?
What’s boosting USD/CAD?
The strength of the US dollar is not the sole reason for the weakness of the C$: it is also a fresh fall in the price of oil: Canada’s main export. The slide, especially in WTI Crude, goes hand in hand with a stronger greenback.
The consequent weakness in CAD, resulting from both factors, was exacerbated by the weak Canadian housing starts number. On the other hand, not all is bad north of 49th parallel: Canadian GDP grew more than expected, and the Bank of Canada seemed to have calmed down.
It is also important to remember that a rate hike in the US (expected in June), depends on a strong US economy. And a strong US economy means stronger demand for Canadian goods. So, there are also reasons for the loonie to rise.
This generally positive economic situation in Canada will be tested on Friday: Canada releases its labor market figures for the month of February.
USD/CAD technical levels
Looking at the charts, beyond the 1.28 level we have only lines seen in 2009, and the round 1.30 number is clearly the most obvious next target.
On the downside, 1.2665, which was a peak in February, serves as strong support if 1.27 is breached. Further below, 1.2565 and 1.25 are of importance.
The bottom of the range that preceded the fresh surge lies at 1.2350: very strong support for USD/CAD.
More: CAD: Staying Short; Credit Agricole
And here is the chart:
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