- The US dollar has been all over the place against the Canadian dollar during trading on Thursday.
- The price action right now is focusing on the 1.37 level, an area that I think will cause a little bit of a headache, but it’s also worth noting that markets have seen green candlesticks multiple days in a row, so it does make a certain amount of sense that we have to give back a little bit.
If we were to break above the 50-day EMA and the 1.3750 level, it could open up the possibility of a move to higher levels, maybe the 1.39 level. If we do fall from here, I think there are still plenty of buyers underneath willing to get involved, and you have to keep in mind that right now short positioning against the US dollar is at a 14-year high. That is typically when you start to see things change when we get to these massive extremes.
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Geopolitical Drivers and Rate Differentials
Crude oil is starting to pick up a little bit and because of that, I think it may give a little bit of a boost for the Canadian dollar, but at the same time there are a lot of concerns from a geopolitical standpoint when it comes to the United States and Iran, so there is a bit of a safety bid as well. Because of this, I think you have a situation where the market is going to remain very choppy because there are both push and pull reasons to get things moving.
Right now, the major consensus for most of the year is to stay in this range between 1.35 and 1.3750 based on multiple large banks. All things being equal, the Fed is expected to cut 1 or 2 times later this year, probably starting in June while the Bank of Canada is already at 2.25%. Most analysts believe that the yield gap has already priced in, leading the market to be a little bit choppier than any.
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