The Canadian dollar falls against the greenback, and 16 other major currencies, to yearly lows as it reaches 1.553 and swiftly approaching the two year low of 1.0656. As pointed out in “USDCAD Technicals,” there is a likelihood that the loonie will continue to trade higher since there are no more clear technicals after Federal Reserve Chairman Bernanke issued statements of potential tapering of the massive $85B/mo. in fixed-income purchases that caused a parabolic spike in USDCAD.
The head of foreign exchange strategy at the Bank of Montreal, Greg Anderson, said the rise in U.S. yields are what’s in full view and driving global equities. “… it’s driving global commodities lower, and it’s got people kind of panicking out of emerging market currencies, and secondarily, out of commodity currencies,” Anderson explained.
Since monetary stimulus tends to devalue a currency, the US dollar may be poised for additional gains by reaching yearly highs again (after takings a pause from carving out a bottom prior to the June FOMC minutes).
The outlook is a little shaky as loonie reaches into extended territory. Currently trading at 1.0534, USDCAD has traveled 398 pips since the 1.0136 daily bottom on June 14th, and it has marked an exponential RSI of 94. The Fisher Transform indicator, which predicts price trend reversals, is starting peak out and slope downward.
A retracement is in need, but it may be hard to determine when it will happen given the lack of technical indication and may solely lie on fundamental factors. As of now, there is less reward to risk at this point to add any positions. I am looking for a retrace to 1.045-8 before attempting for the 2Y high.