The USD has sown strength on the CAD and we are now at the 1.300 level and expect it to move higher and see any dips as buying opportunities.
Our view of the fundamentals, sentiment, and technicals below…
In terms of USD/CAD, the market is generally bearish and we saw this view last week: In terms of USD/CAD:
“We think the CAD has some – fairly obvious – fundamental virtues, such as tightening Bank of Canada monetary policy and very resilient growth but those factors continue to be overshadowed by external factors (equity market vol) which may keep the USD better supported for the moment. We do think that the USD gains should remain capped above 1.29, the top of the range that has held spot for the past 10 months or so.” (SCOTIABANK)
We have now broken 1.2900 and see it as good support – a move above 1.300 will see up a move to 1.400 as per the charts at the end of this article.
In terms of the USD our bullish view is based upon the following big fundamentals:
The global economy is clearly slowing which is historically bearish for commodity currencies.
In addition, commodity prices are likely to fall due to lower demand and also a stronger USD – Commodities are also priced in USD and a rising USD is bearish for commodities.
In terms of crude oil Canada’s major export we think the war premium is discounted in the price and would expect longer-term a move down to 90.00 then 80.00 which is bearish for the CAD.
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Finally, if we get a meltdown in stock markets which we think will happen this will give the USD additional traction to the upside.
In terms of the USD, we agree with this view:
“We expect the USD to continue to benefit from even higher rates, tighter liquidity, its role as a safe haven in times of geopolitical uncertainty, and also a slowing global economy. The USD should also benefit from the US’s commodity exporter role (food and energy) and the fact that most commodities are priced in USD.” (NORDEA)
Technical Analysis
On the monthly chart, we have support at 1.2900 and resistance at 1.300. A breakout above 1.300 is expected to signal far higher prices.
If we look at the daily chart, we can see support at 1.2900 and if we were to dip back to this level, longs could be taken on strength with a stop behind second level support.
We view the USD as a buy on a breakout higher or on a correction lower.
