Canadian Dollar Moves High on Commodity Optimism; Analysts Still Bearish

by on January 5, 2014 6:23 pm BST

The Canadian dollar rose  with fellow commodity-linked currencies on hopes that the massive downward fall in raw-material prices have reached a bottom. However, the upward movement could be more linked to the largest Canadian-to-US dollar decline in five years. The move is speculated by Bank of Montreal’s Greg Anderson, “the market was short all the commodity currencies and traders that are in are looking to take out stops in those positions and as a result we’re getting a bit of position trimming.”

The Canadian dollar is still in trouble as bearish movement quickly took over price movement in crude, Canada’s largest export. Prices in crude reached $101.76 per barrel before closing the week at $94.225 in four sessions.

Analysts still remain bearish on the Canadian dollar, and a move to 1.0800 on the USDCAD is more than likely. Bank of Canada (BOC) warned of the deflationary risks as Canadia consumer prices still remain below the BoC inflation target of two percent. The slow recovery is being masked by recent positive news and Federal Reserve taper out of the United States.

Derek Halpenny and Lee Hardman, Bank of Tokyo-Mitsubishi UFJ strategists, wrote to their clients “we expect that the Canadian dollar’s weakening trend from 2013 will extend into 2014.” The two strategists further said “the Fed’s decision to begin to taper QE and the strengthening U.S. economic growth outlook in the second half of 2013 have helped to lift the U.S. dollar” while Poloz’s focus on low inflation is prompting him to leave “the door more ajar to further easing if required ahead.”