The loonie rose 0.71 percent to C$1.32332 against the U.S. dollar, approaching the session highs since March. Its strength caught many investors by surprise given the drop in Oil prices to the lowest levels since August this week, which is seen as one of the major drivers in the economy.
The continuous appreciation of the Canadian dollar was brought about by a double-punch of hawkishness from Bank of Canada members Wilkins that was stamped by Governor Poloz who said that prior rate cuts had fuelled economic growth in terms of an Oil crash.
Recent growing value of CAD was also triggered by better-than-expected retail sales released on Thursday, the strongest start since 1991 showing a confirmation of a stable and growing Canadian economy. This figure highlights how much consumers—buoyed by strong employment growth—have powered the nation’s economy out of an oil slump, generating growth that is among the highest in the developed world. Increased investors, however, show angsts over the growth may not be sustainable as most of the consumer spending is driven by the wealth effects from a surging real estate market, especially in Vancouver.
As Poloz said, the economy is gathering moment, not only in some certain spots but across a much wider array. Investors need to keep a close eye on the upcoming CPI data on Friday, which is forecasted to be 1.5 percent, slightly lower than previous. If CPI is set to be higher, it could put pressure on the Bank of Canada to raise rates, an action that leads to stronger CAD.
The hourly technical chart shows that there are two key supports in the level of 1.31905, the June 19th’s lows and 1.34641, the June 14th’s lows. In the event that the USD/CAD breaks lower, traders should first watch for the pair to breakout beneath those two lows. Alternatively if prices reverse higher pulled by supports, traders may look for a long position in the near term.
Chart 1: USDCAD H1
The USD/CAD is consolidating in a developing ascending weekly price channel. With touching the lower channel line, it likely rebounds with a technical support and keeps moving in the channel. However, if it succeeds to break lower continuous CAD gains could occur which attracts more investors to buy loonies for more profits.
Chart 2: USDCAD W1
Retail trader data reveals 68.4 percent of traders are net-long with the ratio of traders long to short at 2.16 to 1. Traders have remained net-long since Jun 07 when USD/CAD was trading near 1.34474. The number of traders net-long is 7.6% higher than yesterday and 0.8% lower from last week, while the number of traders net-short is 15.7% lower than yesterday and 22.3% higher from last week. When sentiment is read as a contrarian indicator, this positive value suggests a bearish bias for the currency pair.
Chart 3: USDCAD Client Positioning
