Fundamental Forecast for Canadian Dollar: Bullish
Even though the economic docket remains fairly light for the week ahead, USD/CAD may continue to exhibit a bearish behavior as market participants digest the fresh developments coming out of the Bank of Canada (BoC).
The dollar-loonie exchange rate is quickly approaching the 2016-low (1.2461) as Governor Stephen Poloz and Co. deliver the first rate-hike since 2010, and the Canadian dollar may continue to appreciate against its U.S. counterpart as the BoC appears to be on course to implement higher borrowing-costs over the coming months.
With the Canadian economy now projected to grow an annualized 2.8% in 2017, the BoC may layout a more detailed exit strategy the as ‘output gap is now projected to close around the end of 2017, earlier than the Bank anticipated in its April Monetary Policy Report (MPR).’ The material shift in central bank rhetoric suggests Governor Poloz and Co. may even consider a series of rate-hikes especially as ‘the factors behind soft inflation appear to be mostly temporary.’
At the same time, mixed data coming out of the U.S. economy accompanied by the cautious rhetoric from the Humphrey-Hawkins testimony have dragged on interest-rate expectations, with Fed Fund Futures back to highlighting a 50/50 chance for a move in December. In turn, narrowing expectations for three Fed rate-hikes in 2017 may foster a longer-term bearish outlook for USD/CAD as Chair Janet Yellen notes ‘the federal funds rate would not have to rise all that much further to get to a neutral policy stance.’
USD/CAD Daily Chart
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USD/CAD remains at risk for further losses as both price and the Relative Strength Index (RSI) preserve the downward trends from earlier this year. Moreover, the bearish momentum appears to be gathering pace as the RSI pushes deeper into oversold territory, with the dollar-loonie exchange rate largely eyeing the 1.2620 (50% retracement) hurdle as it clears the June 2016-low (1.2654). Next downside hurdle comes in around 1.2420 (23.6% expansion), which sits just under the May 2016-low (1.2461).
Check out the new gauge developed by DailyFX based on trader positioning.
Retail trader data shows 73.3% of traders are net-long USD/CAD with the ratio of traders long to short at 2.74 to 1. In fact, traders have remained net-long since June 07 when USD/CAD traded near 1.3481; price has moved 6.2% lower since then. The number of traders net-long is 1.6% higher than yesterday and 3.4% higher from last week, while the number of traders net-short is 7.5% lower than yesterday and 1.4% higher from last week..
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