The USDCAD currency pair continues to move within the upward trend, which started in the last days of 2023. By the current moment, half of the December losses have been recovered, and quotes have been testing the level of 1.34 from below for 3 days in a row. If this level is broken, the bulls could target the September lows near 1.345. Both technical and fundamental factors are in favor of this scenario.
Yesterday's USDCAD growth momentum was fueled by disparate trade balance data in the US and Canada. The US figures were better than expected, while the Canadian figures disappointed market participants. Canadian exports fell by 0.6%, while imports rose by 1.9%. According to the forecasts of Stuart Bergman, chief economist at Export Development Canada, the reversal of the negative trend will take place not earlier than in the second half of 2024.
Katherine Judge, an economist at CIBC Economics, agrees with this view. So far, Canada's trade balance is still in surplus, but this situation is about to change. According to Judge, the trade balance will return to the negative zone with the increase in imports of automobiles from the United States. At the same time, Canadian exports, represented primarily by natural resources, will be under pressure from low demand due to tight monetary policy of the world's leading central banks.
Aaron Hurd, senior portfolio manager at State Street Global Advisors, notes the greater sensitivity of the Canadian economy to high interest rates compared to the US. In his opinion, this situation will continue to put pressure on the Canadian dollar, and even the growth of prices for exported raw materials won’t be able to make a dramatic improvement. An illustrative example is yesterday’s situation, when the oil price rose by almost 2%, but it did not save the Canadian currency from weakening.
On the daily chart of USDCAD, the RSI indicator continues to move upwards, indicating that the buyers of the American currency retain the initiative. At the same time, there is no threat of excessive overbought, so there are no significant obstacles for reaching the level of 1.345.
The following trading strategy can be suggested:
Buy USDCAD at the current price. Take profit — 1.345. Stop loss — 1.333.