The Canadian dollar will likely be exposed to further US dollar strength over coming weeks and dips in USDCAD should prompt renewed buying interest amongst speculators.
The Canadian currency is however firmly placed against the British pound, in fact the GBP to CAD conversion appears to be caught in a rut and is in need of some direction.
The real interest in the CAD complex lies with the USD/CAD which recently made a move above the late October resistance at 1.3280.
This is a five week high and exposes the exchange rate to resistance at 1.3455.
"The bulls will be buoyed by the fact that the momentum indicators are strong but also show further upside potential, with the RSI around 50 and Stochastics pulling higher too. This would suggest that little near term intraday dips in the price should be seen as a chance to buy now," says analyst Richard Perry at Hantec Markets.
That said, near-term moves could offer opportunities for those looking to sell their Canadian dollars as shorter-term hourly chart show that the price is just consolidating and could result in a dip lower as some of the overbought momentum unwinds.
"There is good support that starts to come in around the breakout at 1.3280 with further support back at 1.3240 and more strongly at 1.3190. Once the bulls settle down, I would expect the move higher to resume with a retest of Friday’s high at 1.3315 before further gains are seen," says Perry.
Buy US Dollar Dips
Traders will be looking for any declines in the US to Canadian dollar exchange rate to be buying opportunities it is alleged.
If true, any Canadian dollar strength should be taken advantage of.
"In the near term we would by unsurprised should we see a modest USD consolidation. However, we remain a buyer of USD dips. We look to buy the DXY on dips back to 98.75/85," says Jeremy Stretch at CIBC in London.
Ahead of the release of US retail sales on Friday expect markets to continue to monitor upcoming Fed rhetoric, with the first speaker of the week being a dove and ’16 Fed voter Eric Rosengren.
"Unless Dudley and Fischer push back against market rate expectations later in the week expect spread-based support to continue to drive broad USD buying interest," says Stretch.
After surprisingly resilient non-farm payroll data December rate expectations have continued to advance since the recent FOMC statement and investors are rebuilding cumulative net USD long positions.
Across the last two IMM snapshots net longs have almost doubled, back to levels not seen since late August.
Cumulative net US longs in the most recent data for the week ending November 3 registered just over
three quarters of the one year moving average.
The probability of a December rate hike stood at 56% ahead of payrolls and has now advanced to 68%. As markets increasingly price in our long-term assumption of a December rate hike, the key question is increasingly the amount of tightening priced in for next year.
"Currently markets are pricing in less than a 30% probability of rates being between 0.75-1.00% by the end of next year. That in our mind remains too low - we maintain a supportive USD bias," says Stretch.