The USD/CAD pair fell during the session on Tuesday, testing the 1.24 level for support. It did in fact find support there though, and as a result we formed a little bit of a hammer. The hammer sits at the bottom of consolidation, so we could very well bounce from here and a move above the 1.25 level is reason enough for us to start buying. However, we do recognize that this pair can break down a little bit and start to fall looking for more support, we think that support is at the 1.20 handle, and therefore we are buyers of that massive pullback if we do in fact get it. We do not have any interest whatsoever in selling this pair right now because we believe that the support sits all the way down to the 1.18 handle.
On top of that, you have to keep in mind that the oil markets are doing no favors for the Canadian dollar, so there isn’t much in the way of a fundamental reason to buy the Canadian dollar has far as the oil correlation is concerned. Adding bearish pressure to the Canadian dollar is the fact that the Bank of Canada recently cut interest rates, which of course works against the value of a currency as well. With that being the case, the interest-rate differential between the greenback and the Loonie continues to tighten, and that of course continues to favor the US dollar as it is considered to be the “safer” of the two currencies.
However, keep in mind that the Canadian dollar does benefit from being a North American currency, so although we anticipate to see some weakness in the Canadian dollar against the US dollar that does not necessarily mean that is going to be weak overall. In fact, we quite like the Canadian dollar against other currencies but recognize that in this particular instance, the US is going to come out on top as the American economy is doing better than most other economies around the world at the moment.