USD/CAD – Canadian Dollar Sinking, Is 1.40 Next?

The Canadian dollar is steady on Monday as USD/CAD trades at 1.3950 in the European session.  In economic news, it’s a very quiet start to the week, as there are no Canadian or US releases. Given the lack of economic cues, we’re likely to see limited movement from the pair during the day. The markets are now focused on US Final GDP, which will be released on Tuesday.

The Canadian dollar continues to sag, and has lost a remarkable 600 points against the greenback in the month of December. Oil prices bear much of the blame for the Canadian currency’s woes, as the commodity-based currency is heavily dependent on the prices of commodities such as oil, and as oil prices have plunged, the Canadian dollar has taken a beating. Last week’s Federal Reserve rate hike has added to the loonie’s troubles, and USD/CAD touched above the key 1.40 line last week, the first time this has occurred since May 2004. Traders should be prepared for the Canadian dollar to continue to decline, as there is little reason to expect a turnaround from the currency anytime soon.

After months of anticipation in the markets, the Federal Reserve raised interest rates by 0.25 percent last week, the first upward move since June 2006. The Fed dropped a broad hint in its October policy meeting about a rate hike before the end of 2015, and predictably, investors and traders were busy trying to guess whether the Fed would indeed press the rate trigger. To the credit of Fed chief Janet Yellen and her colleagues, the Fed put into place a carefully-crafted strategy, sending a steady of stream of signals that it was intending to tighten monetary policy, if economic conditions remained positive. This gave the markets ample time to price in a rate hike, and currency market volatility was not excessive after the US rate hike, the first in almost 10 years.

The rate hike of just 0.25 percent is expected to have limited economic impact, but the psychological aspect of the rate move cannot be overemphasized, as the Fed has given the US economy a critical vote of confidence, and has indicated that additional rates are likely over the course of 2016. The Fed’s strategy contrasts sharply with the bungled approach of Mario Draghi at the ECB, who hinted that the ECB would take significant easing steps at its December meeting, but failed to deliver as the ECB did little more than extend the current QE program for another six months. This led to complete turmoil in the markets, resulting in the euro surging by as much as 500 points before it leveled off.

USD/CAD for Monday, December 21, 2015

USD/CAD December 21 at 12:10 GMT

USD/CAD 1.3934 H: 1.3963 L: 1.3910

USD/CAD Technical

S3 S2 S1 R1 R2 R3
1.3640 1.3757 1.3865 1.40 1.4165 1.4310
  • USD/CAD posted slight losses in the Asian session but has recovered in European trade.
  • The round number of 1.40 is a weak resistance line.
  • 1.3865 is an immediate support level.
  • Current range: 1.3865 to 1.40

Further levels in both directions:

  • Below: 1.3865, 1.3757 and 1.3640
  • Above: 1.40, 1.4165 and 1.4310

OANDA’s Open Positions Ratio

USD/CAD ratio is pointing to gains in long positions on Monday, continuing the direction we saw a day earlier. This is not consistent with the pair’s movement, as the Canadian dollar continues to post losses. The ratio has switched to a majority of short positions (65%), indicative of trader bias towards USD/CAD reversing directions and moving lower.

USD/CAD Fundamentals

There are no US or Canadian releases on Monday.

Upcoming Key Events

Tuesday (Dec. 22)

  • 13:30 US Final GDP. Estimate 1.9%

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.