Canadian Dollar Falls on Woes of Its Big Neighbor

by on October 20, 2013 7:52 am BST

The Canadian dollar declined against the majority of its peers due to the growing concerns over the effect the 16-day US government shutdown had on the economy, with the US being Canada’s number one trading partner.

“With inflation so low and uncertainty in the U.S. economy, the economic metrics are just not showing enough growth for the Bank of Canada to start normalizing policy,” Jack Spitz, managing director of foreign exchange in Toronto at National Bank of Canada.

With the Canadian dollar down 2.5 percent this year and the lagging recovery efforts, it is unlikely the Bank of Canada will increase their cash rate on October 23.

“The economic landscape in the U.S and Canada is fraught with uncertainty, and the same concerns about growth in the U.S. have tainted the Canadian outlook,” said Marc Chandler, head of fixed-income strategy at Royal Bank of Canada’s RBC Capital Markets unit.

Technically, the USDCAD looks weak and growing pessimism over US economic growth and monetary policy weigh on the US dollar. On the daily chart, the pair has respected the 23.6 percent retracement Fibonacci level and is continuing to the downside following rejection. The price action has broken and closed below the 38.2 Fib. level just above the 200 EMA. This important moving average can act as dynamic support, but continued downside pressure can follow. A break below the 200 EMA will signal a move down to 1.0225, while a bounce off the moving average will give the pair a go at 1.0395 to retest the 38.2 Fib. If the test is positive, price action can advance to 1.0335-40.

The relative strength indicator is neutral at 41, but the ADX with DMI has given a negative cross. The ADX, or momentum strength, is moderately weak at just over 14 with the indicator slightly sloping upwards.