US dollar to Canadian Dollar: USD-CAD Slump Catches Traders by Surprise
- Written by: Gary Howes
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The Canadian dollar runs riot; USD-CAD stop-losses run lower… and lower.
The Canadian dollar (CAD) has had a good week, as the graph we have included suggests.
However, Friday afternoon in London sees the CAD starting to give back some ground. We have noted that the carry trade is back in favour with the likes of higher-yielding nations such as Canada benefiting from fresh inflows.
The continuation of these inflows will be key to determining exchange rate values through the rest of today and indeed into next week.
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US dollar to Canadian dollar - stop losses triggered
The slump in USD-CAD has caught many by surprise, TD Securities is one bank that was not expecting the deep pullback. Analysts Shaun Osborne today tells us:
"The slide in USDCAD has extended further—much further than we anticipated over the past few days. We said at the start of the week that—absent any domestic data releases—the CAD would be a slave to the flows and the broader trend in the USD. But we had little clue that the rout would be this comprehensive."
The fundamentals have not changed
We mentioned yesterday that Barclays are still USD-CAD bears; they see declines through this year.
The same sentiment is expressed by Osborne today:
"We reiterate that nothing fundamental has changed to support the CAD rebound in our view. Positioning had become a little too unbalanced and once the ball got rolling, there was nothing to stop it.
"If anything, factors have moved moderately in the USD’s favour as US-Canada spreads in the belly of the curve are trying to establish a foothold above the par area (5-year spreads are at their most USD-supportive since 2009). On that basis alone, recent trends suggest that USDCAD should be trading north of 1.12.
"Technical levels have yielded and the short-term trend is likely to remain soft but we suspect that the CAD bear trend will quickly get back on track if next week’s data reports reflect sluggish domestic growth (January GDP data is reported Monday while employment data are out Friday) and better trends in the US.
"The broader tone of Canadian labour market does seem to have deteriorated relative to the US over the course of the past year or little more."
