USD/CAD Starts 2011 With a Bang

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USD/CAD broke lower to levels last seen in 2008. The pair went as low as 0.9888 before making a small retreat. The strength of the Canadian dollar has two main driver that will probably continue throughout 2011. Here are the reasons for the move and the next levels to watch out for.

The Canadian dollar continued the momentum seen at the end of 2010. After breaking marginally below the previous 2010 low of 0.9930, 2011 began with a more significant dip to 0.9888. This came on somewhat thin trading, while many are still on holiday, but the move has reasons.

The price of crude oil broke above the $92 mark and reached 92.61. These levels were last seen in October 2008. And where was the loonie in 2008? USD/CAD last saw these levels in July 2008. Levels of support were seen at 0.98 and 0.97.

Dollar/CAD encountered these lines more than once at the beginning of 2008, and didn’t break lower. Lower levels were seen at the beginning of November 2007, when USD/CAD went as low as 0.9056 during the day. This is 1.1042 for CAD/USD. I guess that if new all-time lows will be reached, maybe the convention will change to CADUSD…

A retreat will meet minor resistance at 0.9977 and stronger resistance at parity.

Reasons for move

Anyway, the price of oil, which Canada exports, broke higher. This is a result of high Chinese demand as well as Ben Bernanke’s QE2 program which pushes newly created dollar into bonds and sends money to physical goods – commodities.

But there’s also another reason for this move – the improvement in the US economy. Canada is very dependent on its southern neighbor. American ISM Manufacturing PMI came out as expected, but the expectations were high – 57 points. This is a very strong level.

Also on the painful job front, weekly unemployment claims dropped in the last report for 2010, and fell below 400K. This is a good sign for the Non-Farm Payrolls due on Friday.

All in all, the Canadian dollar has more for gains. Friday is a very important day for USD/CAD – Canadian employment figures are released at 12:00 GMT, and they’re followed by the almighty US Non-Farm Payrolls published 90 minutes later.

For an outlook on the main events expecting USD/CAD, see the Canadian dollar forecast.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

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