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CAD maintains last week’s gains despite crude rally stalling

Posted on: March 14, 2016

Well, I am back after a week away and see CAD has continued to grind into the lower end of what I see the medium term range will be for the next few months. To be honest, I am a bit surprised. Canadian February employment came out weaker-than-expected on Friday, and after an initial 50 point weakening move from 1.3250 to 1.3300, the CAD rallied for the rest of the morning down to 1.3168 on the back of strong crude and other commodity price gains.

The move below 1.3200 looks like weak USD longs being stopped out, as shortly thereafter end of week profit-taking set in and CAD weakened back to 1.3250 but even then managed to rally again and close at 1.3223.

Overnight trading was initially subdued, with Asia trying to buy CAD but ran into USD bids at 1.3200. As London opened, crude weakened off from $38.50 to $37.50 on concerns Iran wouldn’t agree to production cuts and this helped weaken CAD in turn to 1.3279 in the first two hours of London trading. However, as North America opened It appears new CAD buying interest emerged and we saw a rather abrupt move from 1.3255 to 1.3220 on the back of well, nothing.

Of course, given intraday moves over the last few weeks, a 35 point move could just be a pension fund asking around on 50 million. And sure enough, CAD just weakened back to 1.3255 as crude drops 30 cents.

So that is the lay of the land, overall, I think CAD is reaching the fundamental level where you should buy USD. Canadian data is not particularly impressive, and the market has so completely taken out US FED rate hikes this year that any hawkish slant to this week’s FOMC monetary statement could see a rush back into USD.

On the other hand, given the market is starting to increase long position in crude and trading like the techies and momentum guys want to see a break above $40.00, that is going to keep CAD weakness for the time being, and indeed the short term risk for the next few days is that participants try to pick a bottom here in USD/CAD and see crude gap above $40.00 and then get stopped out as CAD extends below 1.3200. The large 50+ point intraday swings seen last week are evident of this duality in funds.

Overall, I think for today buying USD below 1.3225 and playing for 30/40 points is the way to go, but being successful entails watching crude and picking entry and exit levels in CAD accordingly.

  • Fridays Inter-bank range: 1.3168 – 1.3314
  • Asia overnight Inter-bank range: 1.3209 – 1.3246
  • London overnight Inter-bank range: 1.3237 – 1.3279

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