Here’s a chart of the loonie vs. the USD that I have posted on this blog site many times before. It’s amazing how the support line, which I drew years ago on my original post, held until late last year – and now has become resistance. Sometimes this technical analysis stuff actually works, folks (tongue in cheek!)
If you’ve followed my work for any period of time, you will know that I try not to make too many assumptions when forecasting. In the case of the loonie, were you to ask me where the next target is – I will have to say that our dollar looks to be facing a huge hurdle at the new resistance (old support) point of $0.945 USD. That ceiling, if broken, will open the loonie up to a huge upside. But like I said, I will draw no assumptions on that happening. Better to wait until 0.945 is broken before you get too bullish on the loonie (or bearish on the USD exchange rate).
The USD measured against a basket of world currencies has been range bound since 2012. The movement has been quite tight since the beginning of this year. Currently, the USD appears to be moving towards the top of its tight trading range, which on the chart below occurs around 81.50. Support lies at 79 on the chart.
Meanwhile, as you will note on the CDN$ chart above, the loonie has been selling off since hitting its technical resistance zone. Despite the excitement over our loonies recent rise, it would appear that the USD might have the upper hand in the very near term. I wouldn’t hesitate to recommend holding some assets in USD at this time – and probably won’t be too concerned about seeing a par-loonie unless the vital 0.945 resistance noted above is cracked. Given the length of time that 0.945 support (now resistance) level held, a breakout and return to par may not happen for a while.
What would be the best way to play this. I can’t find any etf’s that track just the USA/CAD pair but lots that track the USD
DLR does what you want I think
With an opening declaration that I am a newbie to investing and learning about fundamental and technical analyses, my limited experience seems to indicate two major influences on the CA$. From a fundamental standpoint, the Govenor of the Bank of Canada plucked our loonie’s wings at the par level and sent it into a crash dive with his stated preferred target in the lower 90 cent level against the US$…all in the guise of fiscal and economic stability for our trade balances. I also suspect that the Bank of Canada’s tweakings behind the scene with their market levers have also contributed towards its sustained fall and restrained increases.
Secondly, on a technical basis, I follow the price of crude oil as well as the price of gas at the pumps for quick reality checks. The CA$ is seemingly tied directly to the hip of oil. While supply and demand are always primary influences, so are world tensions especially if there are possibilities of oil supply disruptions. As well, bringing it back to the US$, the price of oil can also be affected by the strength/weakness of US$, and hence back into more market mish-mashing until our shy loonie can find a sheltered perch.
Thoughtful commentary–thanks Michael. And true, thee is a big link between commodities and the loonie. Although there are other factors as you mention (monetary policy, etc) that drive the relationships of the loonie vs the USD or other currencies (including those currencies on their own).
You will find that technical build in a lot of the “why” factors behind a move–from a purist’s point of view, the charts will tell you most of what you need to know to trade—having said that, we blend technical with fundamentals here at ValueTrend (hence our name…Value & Trend)