Canada Markets

How Low Can the Canadian Dollar Go?

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The Canadian dollar moved below $.90 CAD/USD this week for the first time in six months. This monthly continuous chart indicates that support may be found at the March 2014 low of $.8845, while popular retracement levels of $.8786 and $.8640 may prove to be longer-term targets. The lower study indicates a long-term down-trend in momentum, which indicates a further move lower may be possible before this market reaches over-sold territory. (DTN graphic by Nick Scalise)

One analyst suggested that we're facing a race to the bottom for all of the world's currencies when measured against the U.S. dollar. Another today suggests the consensus among Canadian banks is for a continued downtrend for the next 12 months.

The current trend in the Canadian dollar is sweet news for Canadian exporters, including grain farmers, as they sell into U.S. dollar denominated markets. At the same time, these same operations will be penalized when incurring U.S. dollar denominated expenses.

Today the U.S. Commerce Department issued a revised second quarter growth figure of 4.6%, up from the 4.2% previously announced and well above the 2.1% contraction faced in the first quarter of the year. Superior economic data combined with the perception of looming interest rate hikes in the U.S. market have pushed the U.S. dollar index to the highest levels in over four years, which in turn, is leading to weaker commodities around the world.

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Also weighing on currencies is the weakness faced in commodities, with one example being the tempering of China's economy adding to the weakness of the commodity or resource-based currencies. One way to view this is through the trend in the non-commercial or investor position for resource-based currencies. The net-long position held by non-commercial traders of the Australian dollar, for example, has fallen by 40,700 contracts in the past three reporting weeks to a net-long of 8,347 contracts as of Sept. 23, the lowest net-long position held in 23 weeks. The net-long position held by investors in the Canadian dollar has fallen from 11,630 contracts to 3,064 contracts over the past two reporting weeks, the lowest net-long position held in 12 weeks.

Long-term support may be found at the March monthly low of $.8845 CAD/USD, as seen on the attached continuous monthly chart of the electronic Canadian dollar. Fibonacci support of $.8786, the 61.8% retracement of the move from the March 2009 low to the July 2011 high. Beyond this level, the two-thirds retracement of the same uptrend would see a move to $.8640 CAD/USD.

The lower study indicates the long-term downtrend seen in the stochastic momentum indicators since reaching a high in April 2011. While the current trend is lower, indicators remain in neutral territory and indicate that a further move lower remains possible.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

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