Is the Canadian Dollar overvalued? – Paxforex

The Canadian Dollar has rallied from multi-month lows, especially against its Southern neighbor the US Dollar. The rally lasted in excess of 650 pips from an intra-day high of 1.1278 reached on March 20th 2014 to an intra-day low of 1.0619 which it reached on July 3rd 2014. Price action has since rebounded as short positions were covered which took the USDCAD into a descending resistance level where it currently trades.

Recent economic data has not been enough to convince forex traders to push this currency pair in either direction from current levels which means the market is waiting for one event which would allow for the next direction to be set. The Bank of Canada kept interest rates on hold at 1.00% which gave the Canadian Dollar a minor boost until resistance stopped a further advance for the time being.

The housing market remains robust in Canada with the Teranet/National Bank House Price Index advancing 0.9% in June month-over-month, 0.1% above the 0.8% increase reported in May, while the annualized HPI rose 4.4%, below the 4.6% increase reported for the month of May. Existing home sales rose 0.8% in June which marked a sharp slowdown if compared to May’s surge of 5.9%.

Canadian manufacturing shipments were strong in May, increasing by 1.6% month-over-month and beating estimates for an increase of 1.0%. Adding a slight negative to the overall strong report was the downward revision to April which now stands at a 0.2% contraction in manufacturing shipments. International securities transactions surged in May and were reported at C$21.43 billion, economists expected only C$5.00 billion. April’s figure was revised upward to C$10.20 billion.

Inflation data today showed an overall better than expected read on the consumer front. The CPI rose 0.1% in June month-over-month for an annualized increase of 2.4%. Core CPI contracted by 0.1% on a monthly comparison and expanded 1.8% annualized. The Canadian Dollar currently enjoys some tailwind, but any further rally should be taken as a good opportunity to short the Canadian Dollar in the near-term.

Written by Paxforex