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USD/CAD Daily Forecast – Panic Selling Pushes Canadian Dollar To New Lows

By:
Vladimir Zernov
Published: Mar 18, 2020, 16:02 UTC

The major flight for safety in the currency markets in combination with the major sell-off in oil puts additional pressure on the Canadian currency.

usd/cad

In this article:

There’s panic in the markets today, and USD/CAD is no exception. As the U.S. Dollar Index raced through the important 100 level, the U.S. dollar gained a lot of ground against many currencies.

Yesterday, I wrote that USD/CAD breached two resistance levels and that the pair had no material resistance levels left as the previous moves at these highs date back to the end of 2015 – beginning of 2016. The absence of any resistance surely facilitated the major move in USD/CAD.

Even more importantly, the Canadian dollar suffered a fundamental blow due to the panic sell-off in oil. The coronavirus situation gets tougher day by day, and various countries implement tough measures to stop the spread of the disease.

As a result, forecasts for oil demand get worse on a daily basis. Goldman Sachs now estimates that the hit to demand could reach as much as 8 million bbl/day in late March. WTI oil currently trades below $24 per barrel, and my bet is that today the Canadian oil companies won’t bother to check quotes for Canadian oil benchmarks which trade at a substantial discount to WTI.

Adding fuel to the fire, U.S. President Trump has announced that the United States will temporarily close border with Canada to “non-essential traffic”. At this point, the fundamental outlook for the Canadian economy is rather grim, which contributes to the weakness of the Canadian dollar.

However, the biggest driver for the move in USD/CAD is the massive flight to safety that is happening in all world markets right now. The U.S. dollar is the primary recipient of investor money – other safe haven currencies like Swiss frank or Japanese yen are losing ground against the dollar.

Technical Analysis

usd cad march 18 2020

USD/CAD is currently racing towards 1.4690, the high level that was reached back at the beginning of 2016 when the Canadian dollar suffered from a major oil price decline. As oil is currently trading at lows not seen since 2003 and coronavirus poses serious problems for the world economy, these highs for USD/CAD are certainly within reach.

However, it remains to be seen whether USD/CAD can try to test these levels without any pullback. The size of the move is very material, and RSI has already settled firmly above 80.

About the Author

Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.

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