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USD/CAD: prospects for growth

Last week the Canadian dollar dropped sharply, pushing USD/CAD up by more than 300 pips. Traders started buying the greenback on bets it will strengthen when the Fed ends monetary stimulus. The pair closed the week above the 2010-2013 trend line, giving a good signal for buyers. On Monday the pair extended gains, opening the week with a bullish gap and touching almost a two-year high of 1.0550. On Tuesday the pair is consolidating in the 1.0455/1.0520 range, still leaving the gap open.

We concede a deeper correction to 1.0440, but in the medium-term see prospects for growth towards the 1.0700 area. Above this mark there is a cluster of resistance levels (bottom of the monthly Ichimoku, 100-month MA, 38.2% Fibo from the 2009-2011 decline.

That’s what strategists at CIBC World Markets say: “We're seeing a degree of catch-up in the CAD with its Australasian commodity bloc counterparts. There isn't much technical resistance for the USD/CAD until the 1.0670-80 level”. UBS analysts disagree: “The weakness in CAD is expected to be short-lived: Canada’s economic background keeps improving”.

On Friday Canada is scheduled to release April GDP (forecast: +0.1% m/m, prev: +0.1%). 

Chart. Daily USD/CAD

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