The Canadian Dollar exchange rate complex (CAD) remains vulnerable against GBP, EUR and USD following the decision by OPEC to keep oil production steady at 30 million barrels per day despite falling prices.
As the oil pricefell we note the CAD tracked lower alongside and any further declines in prices will likely exert further downside pressure.
At the start of 2015 we see the Canadian currency enjoying a period of respite as oil prices stabilises.
However, the USD appears to be intent on starting the new year in agressive fashion and we see the Canadian currency is at risk of significant losses once again.
A look at the Canadian dollar at the time of writing:
- The pound to Canadian dollar exchange rate (GBP/CAD) is at 1.7951.
- The euro to Canadian dollar exchange rate (EUR/CAD) is at 1.4058.
- The US dollar to Canadian dollar rate (USD/CAD) is at 1.1791.
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USD/CAD Upside Resumes
"USDCAD has been a fast starter in the New Year over the past two years, racking up sharp gains in the early stages of the calendar year in both January 2013 (+3.8% in January/February) and 2014 (+4.5%). Gains of 1.6% for funds since January 1 this year are very much in keeping with that trend. Over the past 10 years, USDCAD has traded higher in January 8 out of 10 times (average gain of 0.6%, according to Bloomberg data)," says Shaun Osborne at TD Securities.
Commenting on the outlook the analyst goes on to say:
"We remain bullish on the outlook for USDCAD; after consolidating for much of the time since mid-December, USDCAD is testing the upper boundaries of the technical trend in place for much of H2 2014 again. USDCAD is approaching the long-term technical targets we outlined in August last year but the risk of an overshoot is significant, considering the broader USD trend.
"The underlying trend indicators are bullish and we have to think that scope for counter-trend corrections remains limited at the present time as a consequence (low/mid 1.17s). The 1.20 area looks reachable for USDCAD—and possibly quite soon, considering the CAD’s weak January track record."
Canadian Dollar - Why CAD is Entering 2015 on a Soft Note
While the door is open to a near-term bout of CAD strength against the euro and pound sterling the longer-term outlook remains less constructive.
The outcome of the November OPEC meeting did not sit too well with the CAD as oil prices entered a fresh bout of weakness.
The British pound, US dollar and euro all jumped higher against the Canadian unit on the news that the cartel would not cut oil production targets and as we head through the year-end there is little sign that the downtrend is over.
We have written here recently how lower crude oil prices would be a headwind for the CAD.
According to Martin Schwerdtfeger at TD Securities the outlook for the CAD remains challenged as downside pressures on the oil price should continue:
"We can only expect crude oil to continue exerting a drag on the CAD, fueling USDCAD's move higher."
The move higher in USD/CAD will likely benefit both the pound sterling and euro.
Thus, the recent run of Canadian dollar strength may now be at an end.
From a technical perspective TD Securities say the USD/CAD exchange rate will run into resistance just below the 1.14 figure.
Australian Dollar to Canadian Dollar Hits Key Support Level
Analysts at UBS have pointed out that the AUD/CAD rate is currently at a key level from a technical perspective:
"Important AUDCAD support at 0.9632, the 62% retracement of the July 2013 to April 2014 bull move, has given way this week. Confirmation on Friday would be outright bearish, as the weekly MACD is already below its zero line, and momentum below its moving average.
"A weekly close below 0.9632 would expose the cross to at least 0.9407, the December 2013 low, and likely the July 2013 extreme at 0.9185. Sell AUDCAD on a weekly close below 0.9632, targeting 0.9200, with a stop at 0.9755, just above the midpoint of the latest selloff."