USD/CAD had another bullish session on Friday as the traders reacted to several different influences at once. The Canadian jobs numbers weren’t very impressive, and the oil markets fell. Combined with the better than expected US Non-Farm Payroll numbers, and the Dollar got a bid against the Loonie. (It did against almost all currencies for that matter.)
The 1.03 level just above looks resistive and the recent bearishness in this pair seems to be predicated upon the drama unfolding between the Iranians and the Americans. The threats of closing the Strait of Hormuz really shook the markets, but as time goes on – it is becoming more and more apparent that the action won’t be taken. The area is vital to the oil trade, and as a result would lead to massive disruptions. Because of this – the Americans would almost have to intervene at that point. If the Iranians would wonder how things could turn out, they only need to look at both of their borders, as the Iraq and Afghani governments have both been overturned by the US military. There is little chance of the Iranians committing suicide, although one wouldn’t know it by the reactions earlier in the week.
As the world comes to grips with this, oil is starting to cool off. This pushes the demand for the Canadian dollar down a bit, and the flight to safety continues to push people into the US dollar. However, these two economies are very interconnected, so the moves in this pair tend to be very choppy, only to be followed by sudden spikes in one direction or another.
We still look for the Dollar to gain against the Loonie over time, but traders should be aware of the fact that the trade will grind for long stretches of time. We aren’t willing to sell this pair as even if the Iranians decided to pull this stunt, in the event of a war – people run to the Dollar anyway. Either way, the USD wins. Because of this, we are buying all pullbacks in this pair going forward.
Written by FX Empire