The USD looks like it’s going to be stuck in the trading range that I predicted on this blog several years ago. In the near term, there is a decent chance it could move to the top of its trading zone (the chart blow is that of USD vs. a basket of wold currencies) somewhere near 100-102. A rally by the USD against world currencies will put pressure on our loonie.
The loonie- chart below, also appears to be stuck in a bit of a range, having attempted to forma a head and shoulders bottom over the past year or so. The falling peaks and flat trough suggest consolidation (descending triangle) within the attempted H&S bottom formation. This chart looks fairly neutral at this time. There is no clear direction as to what the loonie will do. However, I suspect that if the current levels of around $0.75 – 0.76 USD do not stick, we may see a rapid deterioration in our currency.
Factors affecting the strength of the USD will be the Fed’s tightening language and actions, and international tightening/loosening policies. Economic factors will also play into USD strength.
Factors affecting the loonie will be the strength of the USD, and of course, good old oil prices. Generally, I am bullish on oil, with hiccups along the way. It is tough to call when the Fed will pull the trigger on rates – but my guess is if not this month, then perhaps it will happen prior to yearend. That being the case, the loonie will need to find strength from energy pricing to fight the strength of the USD.
For now—I like the USD and remain exposed to it