Canadian Dollar Manages to Avoid Commodity Currency Sell-Off, For Now at Least

The Canadian dollar (Currency:CAD) has so far avoided the fate of its fellow 'commodity currency' bedfellows - the Australian and New Zealand dollars have been hammered by today's poor Chinese data.

Nevertheless, Shaun Osborne at TD Securities warns the issue could still catch up with the CAD if commodity prices show signs of rolling over against the recent trend higher.

Oil price rebound supports the CAD dollar

Osborne points out that CAD has received support as oil prices rebounded from the intraday low yesterday but have lost a little ground again so far today.

But, price signals from the oil market still suggest that crude futures risk reversing some of the late June/July rally at least.

"Better retail sales data yesterday helped support the CAD but absent any domestic data for the next few days, the CAD will likely pay more attention to external factors like commodities," says Osborne.

Technical outlook for the Canadian currency

Concerning the technical outlook for the Canadian dollar Osborne says:

"On the charts, USD/CAD continues to push back against the June rally. USD/CAD looks oversold across a range of timeframes and we are starting to push up against some important (for us) short and medium-term support points in the 1.0250/80 area.

"We remain longer-term USD/CAD bulls and think the move down in funds should start to slow but turning this move around may take a little while."

Mathew Weller at GFT says USD/CAD risks further moves to the downside:

"The USD/CAD collapsed shortly after we published yesterday’s Candlestick Daily report as Canadian retail sales data crushed expectations.

"This took the North American pair down through the 1.0300 handle and rates continue to sell off as I write. The current 4hr candle is likely to finish as a Bearish Engulfing Candle, suggesting more weakness as we move into today’s North American session."

"To the downside, the next major level of support comes at the convergence of daily fib and Monthly S1 Pivot support at 1.0240-50. More aggressive intraday traders may want to consider short-term sell trades targeting this support level later today.

Eric Theoret at Scotiabank says while the CAD has been stable for much of 2013 risks still remain:

"In 2013, CAD has generally been less volatile than most of its major peers, a dynamic that is generally attributed to its close economic ties to the US.

"The absence of domestic data through the remainder of the week will leave CAD vulnerable to broader market sentiment, however Tuesday’s stellar retail sales release has added considerable upside risk to domestic growth in Q2, impacting BoC expectations and US-Canada yield spreads and thus providing sup-port to CAD."