Canadian Dollar Forecasts: Geo-Political Tensions Could Boost CAD Against the USD, GBP and EUR?

For reference, on Friday morning London time, the following CAD rates are on offer:

• The euro to Canadian dollar exchange rate is 0.07 pct higher at 1.4732.
• The pound to Canadian dollar exchange rate is 0.14 pct higher at 1.8464.
• The US dollar to Canadian dollar rate is 0.06 pct higher at 1.0825.

If you are holding out for better rates, or afraid of a further deterioration in the FX pair you are watching, then consider getting an independent FX firm to help set up a risk management strategy. They will also be able to deliver up to 5% more currency than your bank would typically deliver on execution.

The Iraq Crisis and forecasts for the Canadian dollar

The big news event in global markets at present is of course the Iraq crisis and its impact on investor sentiment.

Currencies like the Australian and New Zealand dollars are forecast to remain under pressure in this risk-shy environment - but what of the CAD?

Ross Woodfield, Research Analyst with Blackwell Global has analysed the Canadian unit has given his forecast for the Canadian dollar in the current 'risk-off' environment:

"The US dollar has lost quite a bit of ground lately as the tension in Iraq and the threat of a civil war in a very productive oil region, weighs on the world’s largest economy.

"A reduction in oil from Iraq would push the oil prices upwards, which may benefit Canada as energy products make up 23.6% of total exports.

"The cost of oil production in Canada is also an issue (think oil sands) with many projects unprofitable under $100 a barrel, so a high oil price may actually spur economic activity in Canada, much to the delight of Bank of Canada Governor Poloz, who has been disappointed with the growth rates of Canada’s economy.

"The US economy on the other hand suffers at the hands of a high oil price as economic activity is stifled.

"For now the increased price of crude oil is factored into the USD/CAD cross rate, however further swings will have an impact. At the current level the price is sitting close to the bottom bullish line of the pennant shape.

"A breakout to the downside is unlikely as this line has been tested three times and held firm on each occasion, but a another shock to the price of oil could send the USDCAD crashing through, so traders should be vigilant and keep a stop loss tight under this line."

Forecast for the US dollar to Canadian dollar

Adding his forecast on the USD's prospects is Shaun Osborne at TD Securities:

"Using spreads and Canadian terms of trade as inputs into our basic CAD fair value regression model, we think USDCAD should be trading closer to 1.12 currently.

"On the day, we look for firms support for the USD on dips to the low 1.08 area but we will need to see spot move above 1.0880/85—through yesterday’s high—to get any sort of traction. Some help from the key CAD crosses—EURCAD and GBPCAD—would be useful in helping USDCAD gains extend near-term."

Concerning the technical forecast for the euro to Canadian dollar exchange rate (EUR/CAD), Osborne is not optimistic on the EUR's prospects:

"EURCAD’s sell-off has stalled but there is little—or no—sign of a major reversal unfolding here at the moment. In fact, short-term chart patterns suggest that unless EURCAD can make it back above 1.4735, minor pivot, we should expect downside
probing to resume."

Meanwhile, the pound to Canadian dollar (GBP/CAD) has seen its outlook turn slightly more positive:

"GBPCAD found the bid on weakness last week that we expected to reflect the ongoing range trade and subsequent gains leave the GBP looking in pretty good shape now.

"You can’t keep a good currency down. Sterling appears to have carved out a bullish, inverse H&S reversal on the daily chart, with the neckline at 1.8382 currently converging more or less with the 40-day MA signal, that has also served as a decent bellwether of the GBP’s performance recently.

"The H&S formation targets a rise to the mid 1.87 area now—essentially new cycle highs. We think gains through 1.85 (downward-sloping range ceiling) will add to bullish momentum. We expect firm support on dips to the upper 1.83 area now. We continue to target 1.92 as our medium-term, bull objective."