The USD/CAD pair rallied initially during the trading session on Monday, but then fell back towards the 1.2750 level underneath to find support again. He then bounced towards the 1.28 level, as we continue to see significant noise in the market, and that we should probably be very careful when trading this pair. After all, the Canadian dollar is influence very heavily by the petroleum markets, which of course have been very noisy to say the least. By following the WTI Crude Oil market in general, we can get an idea as to what the demand for the Canadian dollar will be. If the oil markets rally, that should bring this pair back down to lower levels, but if oil markets fall, that should give us yet another reason for this market to strengthen. Longer-term, I believe that the market will probably go looking for the 1.30 level later, as the interest rate differential should continue to favor the United States, and of course the oil markets look to be a bit overextended at this point.
Beyond that, we should also keep in mind that the greater Toronto area is currently seeing the housing bubble soften a bit, and that could have the market running away from Canada as well. Ultimately, I think that we will not only break towards the 1.30 level, but longer-term I believe this pair goes much higher. As oil rises, that continues to have Canadian and US drillers flooding the market with supply, and I believe it’s only a matter of time before that starts to cause issues as well. Granted, the situation in the Middle East is getting a bit tenser every day, and that is a bit of bullish pressure on crude oil, but ultimately, I think longer-term it rolls over.
Written by FX Empire