In the middle of February, when USD/CAD was trading at 1.2515, I talked about how it could hit 1.28. Now that this target has been reached, the move could extend to 1.30.
At the time, I argued that the shrinking trade deficit in the US and the first trade deficit for Canada in 32 years would lead to more strength for USD/CAD. This morning, Canadian GDP numbers were much weaker than expected. In the fourth quarter, the economy contracted at the fastest pace since 1991, 17 years ago.
USD/CAD is also trading higher because of broad dollar strength. The dollar has skyrocketed as the Dow breaks 7k to hit the lowest level in 11 years.
USD/CAD is trading well into the Bollinger Buy Zone which i mentioned on Feb 11. There is scope for a bit of a retracement, but as long as the currency pair holds above 1.2600, we could see a move to 1.30. If USD/CAD does manage to trade at 1.30, we could see a gap higher.
Poor Canada has a lot more trouble ahead due to its sensitivity to the US economy. The only silver lining is the rally in oil prices.
Graph: eSignal
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