Canadian Dollar Near Swing Level

The recent buzz was how foreign central banks, like Russia, were exploring the greater use of the Canadian dollar as a reserve asset. The combination of yesterday's weaker than expected Canadian retail sales data, coupled with the dismal US housing data and the subdued Fed statement has seen the Canadian dollar losing streak extend into the fourth session today.

The news stream undermines the Canadian dollar directly by making people question the likelihood of a rate hike next month, which the majority of primary dealers in Canada expected. The news stream is also negative for the Canadian dollar to the extent that weakness in the US economy exerts a drag on the Canadian economy.

The US dollar is flirting with its 200 day moving average that comes in near CAD1.0433. A trend line drawn off the late May high near CAD1.0850 and the 7 June high near CAD1.0680, caught yesterday's high near CAD1.0460. It comes in near CAD1.0450 today. Daily RSI and MACD readings warn of the risk of further US dollar gains.

Trading relationships have changed and the Canadian dollar is now more of a risk-on trade than a macro-economic fundamental trade. This is reflected in the fact that over the past three months the Canadian dollar is more correlated with the S&P 500 than either the euro or yen. The correlation between the Canadian dollar and the S&P 500 is higher in the past 3 months than the correlation between the Canadian dollar and oil or gold or copper.

If the US dollar extends its gains through the resistance levels cited above, the move could extend toward CAD1.06 initially.
Canadian Dollar Near Swing Level Canadian Dollar Near Swing Level Reviewed by Marc Chandler on June 24, 2010 Rating: 5
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