It’s a look at the Canadian dollar versus the US dollar in particular, but really, it’s kind of a look at the Canadian dollar versus other currencies as well which is a little reflected in our relationship to the US dollar, because really, we’re very dependent on resources.
Now, some of you may have noticed that the inflation trade has taken a bit of a break. I did suggest that a couple of months ago that it would take a break, but I still do believe in the longer term that the inflation trade is going to be a good one over the coming year.
Oil has not taken a back seat like copper and some of the other metals and whatnot have, but it may, in fact, take a little bit of a slowdown and that will affect the Canadian dollar as well as other factors, such as the incredibly bad decision process by the Canadian government in during 2020 on ordering vaccines, putting Canada initially at number 56 in the developed world to get originally first shots. They managed to get Canadians their first shots to a very high level, but the second shot status remained subdued being the number remaining, something like number 40 in the world, even to this day as I, as I speak. So that has an impact on our economy because of reopening. So, in addition to the pressures of commodity pricing, which has gone soft as predicted over the summer, we also have the bumbling through the second vaccine process, which is necessary in order for Canada to fully reopen and meet the United States and other countries, as far as reopening economies and getting production and employment and whatnot, working again.
All of that puts pressure on the dollar and there’s other factors we’re going to talk about too. So, I want to just briefly cover the dollar, the Canadian dollar, and take a look at what it might do this summer. And then what our plans should be if we are looking at currency hedging, or if you travel south and you need currency, that kind of thing.
The Canadian dollar. This chart I drew up just a couple of days ago it may be a little bit off as far as the exact price, if we’re showing just under 80 cents versus US dollar for the Canadian dollar. But the one I’m looking at is the support resistance points that are important here, whether the price today is different than the day you’re looking at it at the video.
The dollar hit a high of around 83 recently in the early summer and late spring. And it is heading down towards a level that I, by the way, these lines I marked on this chart and anybody who follows my blog, I marked these lines probably a decade ago on this chart. So, this is very expected and anticipated levels that have proven to be very correct when monitoring the dollar. So, the Canadian dollar, I would anticipate, is going to continue to fall over the summer and probably find support somewhere below 78, possibly as low as 77 cents, somewhere around that.
Where are we right now? We are at 80, so maybe two and a half, 3 cents on the downside from here, not a massive downside in the Canadian dollar, but it’s still something to be taken advantage of. If you are looking to buy US currency or another currency might want to do it now before this two or 3 cent draw down completes itself. And that’s just an estimation, maybe the draw down doesn’t happen, but I have a little bit of evidence to suggest that it will.
First of all, let’s start with seasonality and this is equity clock’s chart. It’s looking at about 50 years of history, and you can see that generally seasonality for the Canadian dollar is a little softer over the summer and right on schedule.
When we go back to this, it’s been soft over the summer. So, we’re not we’re not seeing anything that seasonality would not have predicted here. June, July, and August are often very soft. And in fact, going into August, you can see even more downside on the Canadian dollar versus the US. This maybe adds more evidence than just the chart support resistance levels to a softer Canadian dollar over the summer. But there’s one more thing I wanted you to look at, and that is the Canadian dollar optics. Now I’ve just written a book called Smart money, Dumb money – Using contrarian investing. And the book covers many, many indicators that you can use to spot periods of time when not just markets, but sectors and individual commodities and currencies are overbought or oversold. In other words, helps you spot opportunistic points.
Right now, we are at a point where optimism on the Canadian dollar was very high. And as you can see in the past, when this blue line goes up, that means optimism is getting higher. And when it reaches a certain point where optimism by pro-traders, by option traders and general investors, when optimism on the dollar, or basically almost anything, gets too high, which means somewhere around 80% of the surveyed individuals or the actions of these individuals is biased towards a bullish outlook on the Canadian dollar. You can see it often leads into peaks and that’s what we’ve had in the past. And you can see it’s coincided quite nicely with peaks in the past, and we are at least we were there. It has pulled back up a little bit recently so it’s kind of in that danger zone. Anything above the red line is considered dangerous, but certainly as it approaches 80 on this sentimenttrader.com chart, that’s going to get our real signals.
And we got one of those real signals. So, the idea that I have here is that not only do we have the seasonals working against us over the next month, the technicals working against us over the next month or two, we have the sentiment working against us over the next couple of months. So, all in, what I’m going to suggest is that the Canadian dollar probably has that two or 3 cents downside from roughly the 80 cent point it’s sitting at right now. Over the next couple months, which means that possibly as we come into the fall, we’ll see that typical rally that you get somewhere between September and the end of the year on the Canadian dollar. That’s another seasonal trend that you might’ve seen on that chart. If you go back in the video after that, by the way, the Canadian dollar tends to do fairly poor performance versus the US dollar over much of the winter.
So be aware of that as well, but there tends to be a bit of a rally on the C dollar into the fall and early, early, early winter. And that’s what I would anticipate because it will probably hit that 77 or so set point and then move up from there, even if it’s only temporary. And I think by that point, a lot of the factors I just discussed such as the muffed vaccine program in Canada will finally have fixed itself. I guess it’s better late than never as they say. We will all get our second vaccines, and everything will be hunky dory in Canada for possible reopening. And in addition to that, we will probably see resources start to move into the fall from both seasonal cyclical and fundamental reasons because of the use of goods and services as the world continues to reopen.
I’m suggesting is we will probably see a couple of 3 cents downside in the short term, on the Canadian dollar, but a very likely pop into the fall and early winter by the Canadian dollar. Keep that in mind, if you are looking at doing conversions. None of this is guaranteed. None of this is known for sure, but there’s some logic, there’s evidence, there’s some quantitative stuff we’ve just looked at that suggests it’s a good likelihood that this outlook may in fact be reasonably acceptable as far as the prognostication goes.
Thanks for watching. And if you have any questions, please contact us at ValueTrend. And the other thing I would maybe suggest is if you are interested in learning to use things like the optics that we just looked at and how you find them and all that sort of thing, then read my book, Smart money, Dumb money. It’s just coming out in the next week or so actually I’m hoping probably by the time you see this video; you’ll be able to get it on Amazon. And I encourage you to read it. It’s, I think, one of the more exciting books that I’ve written, it’s got some pretty interesting indicators in there that I think even the most seasoned of technical people are maybe not aware of.
Thanks for watching. And you have a great day.