Analysis and Opinion »

Greenback Hits 4-Month High Against Loonie

David Becker
Share on StockTwits
Published on
www.iforex.com
Greenback Hits 4-Month High Against Loonie

The USDCAD hit a new 4-month high at 1.0997 and since has settled lower near the 1.0970 level. The Loonie has been under pressure amid soft oil and gold prices, and with the Fed coming under more pressure to discuss an exit strategy on policy, the greenback will likely continue to gain traction.

Data in Canada has been mixed, and housing numbers which drew the attention of the Central bank earlier in the year has been slowing in an orderly fassion. Canada’s housing market remains on track for a gradual and orderly slowing in sales, prices and construction. The recent resilience comes after a winter that featured harsher than usual weather, which is likely adding to the usual summer pick-up in activity. A realization of the soft landing scenario will further enable the Bank of Canada’s focus on downside risks to growth, adding to the backing for steady policy for an extended period.

The July meeting and Monetary Policy Review saw the Bank of Canada pivot from a disinflation focus to a preoccupation with the economy’s substantial spare capacity, consistent with the maintenance of an accommodative policy stance. The firmness in housing, if maintained, would join the mix of firming growth data that will make it difficult to look past the near 2% y/y core CPI that we anticipate by the end of this year.

The USDCAD seems to be forming a reverse head and shoulder pattern, which should target the 2014 highs a 1.13. Momentum on the currency pair is flat as the MACD (moving average convergence divergence) index is printing near the zero index level. The RSI (relative strength index) is chopping around in a tight range reflecting consolidation and printing near 60, which is in the upper end of the neutral range.

Share on StockTwits