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USD/CAD: what to expect?

  Kira Iukhtenko

USD/CAD remains stuck in a sideways 1.2800/1.2350 range for a third month in a row. The pair bounced from the daily Ichimoku cloud and the 55-day moving average on March 26, but failed to overcome the 1.2800 mark for now. 

We review the medium-term prospects of the pair as bullish. Be ready to reenter longs on a break above 1.2800. USD/CAD is expected to hit the 2009 highs at 1.3060 in Q2. The outlook remains clearly bullish above the 1.2350 support. Fix lower would signal a medium-term top was formed.  

Fundamental background

  • A dip in oil prices is hurting the Canadian export-oriented economy badly. Canada’s GDP fell by 0.1% in January. We expect crude prices to extend the decline in spring amid the increasing oversupply on the market
  • Monetary policy divergence between the Bank of Canada and the Fed will keep on growing. The Fed is widely expected to hike rates in 2015, while the BOC has recently hinted it has many options to support the economy if needed (rate cuts, “dovish” forward guidance or asset purchases). The BOC unexpectedly cut rates by 25 bps to 0.75% in January. Next meeting will be held on April 15
  • The Fed is trying to limit the US dollar rally these days in order to support the economic activity. However, investors have no havens to hide, so the greenback’s buying will anyway resume in the coming weeks

Chart. Daily USD/CAD

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