The dollar strength following a boost in the ISM manufacturing index lifted the USDCAD over the key 1.0620 level, and the pair is looking to ride on the momentum going into key data points over the next few days. “This is confirmation that the overall direction for dollar/Canada is higher still, or lower for the Canadian dollar,” Mark Frey, chief market strategist at Cambridge Mercantile Group.
Analysts at Royal Bank of Canada (RBC) holds their bearish tone. “I’d characterize it more as U.S. dollar strength rather than specific Canada dollar weakness — the U.S. dollar is just rampant across the board”, noted Adam Cole. head of G10 FX strategy at RBC. But worries in Canadian exports and speculation that the Bank of Canada (BoC) will keep rates where they are is keeping the Canadian dollar down.
Canadian growth is also uncertain. It is expected that the BoC will keep a loose monetary policy, and the potential in a Federal Reserve taper and higher rates will cause the Canadian dollar to fall further, according to UBS AG analyst Geoffery Yu. “USDCAD positioning needs to adjust to a ‘less-negative’ end to the year, but nothing more,” said Yu.
The price action on the weekly chart continues to aid to the bullish USDCAD scenario. Price action opened higher above the key resistance, but a close will need to confirm ongoing momentum. The dollar will be in focus this week with new home sales, ADP and non-farm payrolls, as well as unemployment claims.
So far, data has been more consistently to the upside. Disappointment this week will cause a pullback, but until there is a sentiment shift in the Canadian dollar, USDCAD will continue to the upside longer-term.