Lots of talk of a falling USD seems to be out there. I don’t agree with the USD bears. Technically, the dollar seems to be heading towards $100 on the world currency index comparative chart below. That’s a good 4% higher than current levels. The USD has been sticking to the trendline established in 2011 (black trendline). It’s not showing any sign whatsoever of deteriorating. So, when we view the Canadian loonie, we certainly shouldn’t bet on a falling USD to buoy our currency.
Now let’s look at the loonie vs. the USD. I have posted the chart below, along with its trendline and support/resistance levels, many times before. If I may blow my horn a bit: A quick search on this site for blogs where I cover the CDN$ will uncover a fairly accurate series of calls on the direction of the loonie from yours truly. This comes from the loonie’s clearly strong tendency to stick with trend channels and support/resistance levels. It’s one of the more predictive charts I work with.
So what is the chart suggesting right now?
Well, if you take a quick glance at the green trend channel that I have noted in past blogs, you will see that the loonie hit the top of the channel, and – right on schedule- declined off of it. This is interesting, given the seasonal trends for our currency. Normally, the loonie will experience some degree of strength from about now until late spring. Equityclock’s seasonal chart, below, illustrates this tendency.
So, the loonie is fighting a strong USD, and a declining price channel. It’s got positive seasonality in its corner, though.
Offsetting seasonal positives is the slowdown in Canadian real estate sales, first in Vancouver and now in Toronto (Monthly sales fell -7.7% on a seasonally adjusted basis). I’m sure that the ongoing scandals, aka the influencing of the Attorney General over the SNC case, and the Norman scandal (where the federal government’s procurement department is thought to have leaked sensitive information about Canada’s troubled shipbuilding program) – are causing a loss of faith in the Prime Minister and his government. These will not be overriding factors against the loonie, but they are not helping the case either.
Perhaps the loonie might get one final run at $0.77-ish in the coming months. But the trend is not your friend if you are hoping for much beyond that point. We’re still buying USD’s, despite a potential for a small seasonal reprieve for the loonie.