Canadian dollar may have more downside

Back in early November, I suggested that investors keep some USD exposed securities in their portfolio, and “snowbirds” (people who go south to escape the Canadian winter) consider buying the USD. Here’s the link: https://www.valuetrend.ca/?p=2553

So far, that call was a reasonable one. Recently, first level support at just over 0.94 was cracked for the C$. There is a second less important level, as seen on the chart below, at just over 0.93 that the loonie is now attempting to hold. Should this crack—and I think it will, the target would be in the high 0.80’s for the C$.

The contradicting evidence to that opinion would be sentiment. Note on the Public Opinion chart (top of page) for the C$, provided by www.sentimentrader.com, that sentiment is at an extreme low for the C$. Similar levels in sentiment readings were seen in early 2009, mid-2011, and early 2012. All three of these extreme readings in bearish sentiment resulted in a rally for the C$ against the greenback. Despite the rallies that followed the extreme bearish sentiment readings, the C$ ultimately trended down after the 2011 and 2012 readings. Thus, one could argue for a near termed rally on the C$. But my bet is that any rally will only be a short movement off of an oversold condition. The outlook is not overly encouraging for our loonie thereafter – given the weaker looking mid-term trend. I continue to endorse some diversification into the USD for Canadian investors.