The Canadian dollar follows oil prices

22 December 2022 203
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The Canadian dollar has been strengthening against the U.S. currency in recent days. Investors expect that the easing of COVID restrictions in China will increase demand for oil, which is one of the main export commodities in Canada.


According to Adam Button, a chief currency analyst at ForexLive, markets are starting to take China's economy back to normal. Button also noted that he does not expect the coming months to be easy. However, he believes that they will be followed by an increase in oil demand, which could contribute to a stronger Canadian currency.


It is noted that retail sales in Canada for October increased by 1.4% compared to September. The figure is lower than analysts' forecasts of 1.5%, but it is the biggest growth in the last 5 months. According to preliminary data, November sales are expected to fall 0.5%. Shelly Kaushick, an economist at BMO Capital Markets, sees the reason for the October increase as high prices, particularly at gas stations. In volume terms, retail sales were unchanged.


Inflationary pressures continue to be reflected in the statistics. The consumer price index came out yesterday worse than forecasted, which may force the central bank to continue tightening monetary policy more than investors expect.


Oil confirms the bullishness of the Canadian dollar. Yesterday, oil prices were able to break the downward trend that lasted for several months. After breaking the trend, oil may accelerate growth, which will spur the growth of the Canadian dollar.


According to the technical analysis, the price of the USD/CAD pair has approached the lower boundary of the uptrend. Drawing an analogy with oil, this trend is likely to be broken.


Looking more globally, there is now an inverted cup and handle pattern forming on the daily chart. A breakdown of the uptrend will send the USD/CAD pair to the local low at 1.322. There will be a resistance in the form of a "bowl" border, the breakdown of which will open the way for further decline. However, the scenario of going lower is more long-term, as the dollar will be supported by the 200-day moving average just below the 1.322 level.


Stop-loss will be set when updating the current local highs at the level of 1.372.


Decline of the USD/CAD currency pair:

Take profit - 1.322

Stop loss – 1.372

This content is for informational purposes only and is not intended to be investing advice.

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