Loonie flies south again

Canadian loon’s wisely leave my cottage every year around this time of the year to fly south. If I could hitch a ride, I would. The Canadian loonie looks like it has begun its trip south, too. After flying south to below $0.70 in early 2017, the loonie had risen back to $0.83 on hopes and expectations of a rising rate and improving economy in Canada . I suggested that upside target in several blogs.  I  also suggested that a rip-roaring Canadian business environment is not something to bank on. This, given the spending habits of Canada’s left wing governments (Fed and Provincial), along with its business-oppressive policies, and Canada’s questionable outcome in the trade deals. I have long questioned the sustainability of a high flying loonie.

http://www.cbc.ca/news/canada/toronto/ontario-hydro-auditor-general-report-fair-hydro-plan-wynne-1.4358168

http://www.cbc.ca/news/business/ontario-minimum-wage-jobs-1.4285443

https://globalnews.ca/news/3758607/trudeau-tax-changes-rich/

 

The loonie is now back to its more realistic home of sub- $0.80. Current technical support levels on the CDN $  at around 0$0.78 may not hold much longer.

Chart showing long and short-term trends for Canadian Loonie $CDW

I’d think that the current support level of $0.77 – $0.78 on the charts may crack in the coming weeks.

True, oil is rallying and that can give support or even upside to the CDN dollar. While oil could see $62 in the coming months (something I have positioned the ValueTrend Equity Platform to take advantage of, should that projection be true) I would think that this would not provide enough reason for the loonie to jump much higher than current levels. Rising rates in the USA – and the other factors noted above – will likely outweigh the positive effects of a potentially stronger barrel of oil.  I don’t see any near termed strength in the loonie, should we see any, lasting for too long.

Technical chart showing breakout and price target for WTIC Crude Oil

 

Mid-low $0.70’s target

While you may see the loonie hang around current levels or nominally higher for a while, it’s my bet that the loonie may land on a nice warm southern pond in the $0.73 – $0.74 range before too long.

As noted in past blogs, I converted a good chunk of CDN $ to USD at $0.80-$0.81 recently. I  suggested that readers might consider doing something similar for themselves. Any rallies on the loonie in the coming weeks or months may be an opportunity to convert more assets to the USD. I will be looking for such opportunities. The technical and the fundamental pictures just don’t offer much hope for a north-bound loonie over the foreseeable future.

2 Comments

  • Hi Keith – another analyst uses cycle theory is seeing the USD go into crisis shortly. Do you also see this? And if this occurs, wouldn’t that help prop up our CAN dollar? Love your thoughts.

    Reply
    • Jim–cycles are funny–people expect them to work like an oven timer. “Ding” –muffins are ready at 20 minutes…..I’ve written about cycles before – read my book Sideways.
      Bottom line–if you are looking at a cycle, give it tons of room to deviate from the average. Peaks can translate left or right of the center. And the cycle can last longer than its average, or be shorter. Lots of variables. Also, cycles do end. Yup. They can end.
      I stick largely to basic chart patters and use cycles strictly as a background. The USD vs the large basked of currencies via the stockcharts.com $USD symbol has been stuck in a box. I have noted numerous times on this blog that its been in the $93 – $103 vs the basket since 2013. Until one of those sides is broken (its pretty much right at $93 as I write) then I wont worry about it. By break, I want a good degree lower – say $92 or less, and a few weeks below that price before labeling it as a break, rather than a spike.
      Hope that helps.

      Reply

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