The Bank of Canada has recently announced that they were going to taper from the bond purchase program, and that of course is a very bullish sign for the currency itself. While the crude oil market has lifted the Canadian dollar a bit, the reality is that if interest rates in the Canadian bond market continue to rise, that should send the Canadian dollar much higher in strength.
As you can see, the dollar has fallen to the Canadian dollar yet again, and it certainly looks as if this is going to continue to be the case. The 1.24 level should now offer a bit of resistance, so if we do bounce to recover, I think that any sign of exhaustion near that level should be a nice entry point. Nonetheless, it certainly looks as if the Canadian dollar is eventually going to go looking towards the 1.20 handle, which is an area that is important on the monthly chart.
Adding more fuel to the fire is the fact that the United States is getting ready to start a huge program of spending, and furthermore the market is likely to continue to see the US dollar as undesirable due to all of this excess spending. Furthermore, the yields in America have dropped a bit, so it does make quite a bit of sense that we would see the US dollar fall. At this point, the Canadian dollar is one of the better performers as far as the G 10 is concerned, which as it is the first central bank that is tapering bond purchases, and therefore the Canadian dollar should continue to be stronger than most other currencies. Add to the fact that the US dollar is getting hammered against almost everything, this pair then becomes “Ground Zero” for the US dollar weakness.
If we did somehow break above the 1.24 level, then I think the 50 day EMA comes into play as well. If we break down below the 1.20 handle eventually, that opens up a huge move lower, based upon the monthly charts which could send this market as low as 1.06 over the longer term. I do not have a scenario in which I am willing to be a buyer after the recent selloff that we have seen as of late.
