US Dollar to Canadian Dollar Rate: Now ING say Buy USD/CAD

We give the views of those currency strategists who see value in buying the USD to CAD exchange rate at current levels.

scotiabank

The Canadian dollar is drifting lower against the dollar, euro and pound following the release of Federal Reserve Chair Yellen's testimony to the US Congress. Yellen didn’t deal the U.S. dollar a devastating blow, and if anything, calmed markets after the frantic start to the week. 

Importantly for the CAD, oil continues to remain suppressed around the $30 threshold.

CAD has been firmer of late though having capitalised on the falling U.S. currency and has spent the bulk of February below C$1.40. The loonie’s better performance shows some abatement in bearish drivers.

The USD to CAD Should Rise

The question is, where next for the CAD? With market settling and economic data flow thinning, the charts will play an important role as they give hints as to how the market is structured.

Shaun Osborne currency strategist at Scotiabank, thinks the US dollar may be in the process of resuming its up-trend against the Canadian unit:

"USDCAD’s initial correction from the recent peak around 1.47 is complete."

The strategist goes on to explain his reasoning:

“USDCAD rebounded sharply from levels close to the 50% retracement of the 1.2/1.47 rally last week via a bullish “morning star” signal on the daily candle charts—usually reliable indicators of a change in the trend when employed in conjunction with oversold indicators (note the turn up in the daily slow stochastic measure). “

Scotia’s Osborne now sees to the pair rising back up to “towards 1.42/1.44,” and that a retest of the 1.47 highs is not out of the question.

USDCAD09

Whilst a renewal of the previous strong up-trend cannot be discounted, I think it’s a little too early to call a reversal of the mini-down-trend.

It could be argued this  move down from the 1.47 highs remains intact, with a series of unbroken peaks and troughs down, despite a bounce since the February 4 lows. 

This bounce, however, has lacked upward momentum, as indicated by the diverging MACD, which has continued to make lower lows despite the exchange rate recovering higher.

Normally you would expect to see a stronger profile in the early stages of a more substantial recovery.

Furthermore, the 50-day MA is just above the 1.4000 level, placing major resistance in the way of a rebound.

Ultimately, I still see risks skewed to further downside and an extension of the mini-downtrend lower.

The monthly pivot just below the hammer lows of the 4th, however, would first need to be broken, with confirmation coming from a break below 1.3565, and a target at support from the trend-line at 1.3465.

Westpac Say USD to CAD is a Buy

Backing the US dollar to Canadian dollar exchange rate is Martina Song at Westpac who has announced their models are advocating for a higher rate.

"Our macro, technical and model signals do not yield a clean trifecta of matching signals for any of the G10 in the week ahead and as such we remain sidelined," says Song.  

"Our process however does yield a buy USD/CAD on dips signal, where we have 'two out of three' matching signals and as such look to buy on weakness. USD/CAD has not kept with this latest leg down in WTI. M&A inflow may be the proximate cause of the decoupling," explains Song.

Westpac models have observed current oil prices which suggest USD/CAD more fairly valued nearer 1.45. 

BoC's Lane and Poloz both downplaying rate cut prospects but expect their tone will shift by their next meeting, March 9, amid ongoing market turmoil, "likely further weakness in oil prices and probably more soft local data in coming weeks (business surveys flag more soggy jobs reports in coming months). USD/CAD a buy into 1.36/1.37," says Song.

ING Issue a Buy Call

Joining the Buy USD/CAD team is Viraj Patel at ING who says notes that week’s flight-to-safety in global markets has seen risk assets come under severe pressure once again.

"However, the relative resilience of CAD has been somewhat surprising; historically CAD has been one of the most risk-sensitive major currencies and is typically a notable underperformer in times of market turmoil," notes Patel.

While such price action is broadly evident on the crosses, USD/CAD has been a laggard.

"As such, in the absence of any material turnaround in the risk environment, a sharp move back towards 1.45 could well be on the cards," says Patel.

EUR/CAD Forecast

Scotiabank’s Osborne is more bearish about EUR/CAD, which he views as till broadly in a bearish down-trend:

“..it is not obvious at this point that the cross has done enough to fully reverse the effects of the sharp fall from the recent peak around 1.61.”

The analyst argues for a continuation of the current bounce higher:

“..we suspect that the cross may extend a little higher above the 1.5540/60 area to retest the 1.58/1.60 area in the next few weeks.”

Pound Sterling Live share Shaun Osborne’s view that the pair may rise higher.

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The pair has been in a long-medium term up-trend since May 2015, and this up-trend as started to resume more recently in February, which has seen a string of positive day’s unfold.

MACD, which measure momentum has crossed its signal line providing a bullish signal, and it has managed to remain above its zero-line which further indicates the asset is in a broader up-trend too.

The shooting star candle on the monthly chart is bearish sign, however, indicating it is unlikely the exchange rate will 1.6106 highs in the short-term.

Nevertheless, there is still a possibility the pair could move up and touch the R1 Monthly Pivot at 1.5835, with confirmation coming from a move just above the day’s highs at 1.5730.

GBP/CAD Forecast

In relation to GBP-CAD Scotia’s strategist is equivocal with a bullish forecast side-by-side with sympathy for a bearish move as well.

“..So far, the GBP looks non‐committal, which suggests support should hold.

“Strong GBP buying interest off the lows over the past week or more supports that idea for the moment.”

But on the other hand:

“The bearish interpretation (which we all have some sympathy for) is that the GBP is simply consolidating ahead of another push lower.“

From our perspective, the pair has just fallen to the neckline of a large potential double top reversal pattern visible on the weekly chart.

GBPCAD09

A clear break below the neckline could open the way lower, to an eventual target at 1.9000, however, there is a further thick cluster of support directly below, starting with the 50-week MA at 1.9767, a major trend-line at around 1.9545, and the S1 monthly pivot at 1.9544.

These would all need to be breached before the pair could reach the 1.9000 target, requiring a clear move below 1.9350 for adequate confirmation.

The heavy volume on the right hand peak of the double top is an unorthodox sign which is the opposite to the text-book requirement of lower volume on the right-hand peak, and this raises a question mark over the validity of the pattern.

Therefore, we should not discount the possibility of a recovery instead.
Such a move would be confirmed by a break above the 200-day MA and Feb 3 highs at 2.0315, which would confirm a move up to 2.0479.