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2015

Canadian Dollar Research Report

Published: Tuesday 22 December 2015

The Canadian dollar’s woes continued this month and as the year comes to a close, the Canadian dollar takes the biscuit as one of the worst performers of 2015. It’s down 17% against the USD this year, down 14% against the pound – the majority of the weakness attributable to the collapse in oil prices. Two interest rate cuts from the Bank of Canada have also added to the downside pressure on the Canadian dollar and with the increase in interest rates from the US Fed this week. We’re moving into a period of monetary policy divergence between Canada and it's largest trading partner. The Bank of Canada Governor Poloz even went on to state on Tuesday that they were considering negative interest rates to stimulate the economy (much like the current ECB policy for the Eurozone).
 
Canadian Q3 GDP missed expectations at the start of December, the headline 2.3% quarterly growth below 2.4% headline but it was the September monthly reading of -0.5% , well below 0.1% previous which weighed on the dollar. Analysts are expecting a lacklustre Q4 GDP figure. Jobs data also missed the mark, the unemployment rate grew to 7.1% and the net change in employment for November was a significant miss, -35.7k jobs. Inflation data today will be closely watched, the headline year-on-year figure is expected to come in at 1.5% for November, a reading below that will see further CAD selling.  
 
Looking into the New Year, Canadian jobs data will be reported on Jan 8th; Bank of Canada have their policy meeting on Jan 20th, and whilst they will have a large bearing on how the Canadian dollar fares the largest influence remains the price of oil. The oil price is on it's back of the low while the WTI (West Texas Intermediate) which is north American crude oil price, is currently trading at 35.02 USD/bbl and analysts see more downside which will add more downside pressure on CAD.
 
Over the Christmas period with the majority or traders and market participants away there’s much thinner trading volumes which can mean increased volatility and we always recommend placing limit orders over the next 2 weeks to take advantage of any favourable moves in the exchange rate. Your Halo FX consultant will be happy to suggest levels if you’re keen.
 
Technically after falling to 1.98 level at the start of the month GBPCAD break up through the top of the channel (T4) and over the next fortnight rallied strongly to retest the August high (T6). If the prices do break to the upside then next target is 2.15/2.16. Conversely if it fails to break through T6 then it could be the start of a reversal charting pattern known as a triple top – a confirmed reversal if prices fell below 1.98 again, opening up much larger correction lower.
 

Buyers  

 
It’s definitely worth targeting 2.0750/2.08 with a portion of your funds, with another order targeting prices on the break higher – I would suggest a limit order at 2.1350
If prices down break 2.10 then we’ll see a correction down to 2.06 initially, onto 2.0350 and possibly 1.98 so be a little bit careful.
 

Sellers

 
If you have still got CAD to sell then I would recommend having a stop loss order above 2.10 just to protect yourself against that potential break higher. If prices fall back to 2.04/2.05 level sell a portion with more at 1.98 retest.



FX Research and analysis by Alastair Sweetman



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