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Nikhil Khandelwal
Canadian Money

The USD/CAD pair was seen to cling in the range between 1.3400 and 1.3446 today’s morning. The Loonie had been following an uptrend since the last few trading sessions and continued the rally reaching a two-week high level. The USD/CAD was trading in the upper vicinity above the last resistance level created at 1.3404.

The morning gains of the pair were chopped off indirectly as fears signaled from lower US ten-year bond yields. This had a direct knock on the crude oil which tumbled from $58.92 per barrel to $58.62 per barrel. The crude plunged later the day and was seen the last trading at $58.27 per barrel. The Canadian Dollar which is a commodity-linked currency joined the plunge in the rally pushing the USD/CAD pair further down.

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Fears Build on US Economy Recession

Global investors who were still dealing with European countries uncertainties will now be seeing the deal with possible North American economic recession concerns. Investors having exposure to Canada are also facing the increased probable risk of recession. Canada has joined the US with regard to having an inverted yield curve.

The yield curve inversion was seen earlier in the year 2007, just before the global financial crisis. Yield curve inversion is the difference between Short Term Government Treasury Bills vs. Long Term Government Bonds.

Source: Bloomberg

In the last Fed’s policy meeting, the Federal Reserve made it evident that there are no plans for an interest rate hike in the coming days (2019). The Fed also downgraded the growth forecast for this year until December from 2.3 percent to 2.1 percent. The appalling news that came out during the day on Friday was that there was the negative result obtained, counting as the spread difference between the three-month and ten-year Treasury notes.

The highlighting point is that such a negative result is being produced after 12 long years. According to the definition, the term is called as “Inverted Yield Curve” which is normally taken as an indicator for a probable Recession to happen any soon.

This can be ensured on the coming Thursday when the US Final Gross Development Product (GDP) will be released. If the GDP turns out to be a weaker one, then the odds of a  recession to occur in the near term increases multifold. This can also have a drastic impact on the counterpart currency CAD. The Lonnie investors on that end may lose hopes shifting to selling bias and eventually losing overall strength.


Technical Overview

USDCAD 5 Min with SMA 25 March 2019

The USD/CAD pair has reached the two-week high level of 1.3440. The pair had touched this level twice today. The pair was found to be trading within the Bollinger band range showing less of buying or selling biases. The loonie pair was trading above the major Simple Moving Averages (SMA) and hence a bullish stance from that observation. However, steps should be taken with high prudence.

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