The US dollar fell against the Loonie on Tuesday, as we are trying to find support in the near term.
USD/CAD
The US dollar has fallen against the Canadian dollar during the trading session on Tuesday to test the crucial 1.3750 level. This is an area that extends down to the 1.37 level as support and I think it's going to be very difficult to continue to drop from here, especially in an environment which is starting to see the oil price drop.
Although yields in the United States have dropped pretty significantly during the session, it's also worth noting that the interest rate differential still favors America. Ultimately, this is a market that I think remains somewhat range bound; that makes a certain amount of sense. It typically is, quite frankly.
Support Zones and the Federal Reserve Outlook
I believe ultimately you have a situation where you are going to be looking for some type of reason to get involved and I think we do have buyers in the general vicinity of where we are right now. If we can break above the highs of the day, then we could see a little bit of momentum, but this is a short-term trade. This is not some type of major revelation waiting to happen.
Market participants continue to favor the US dollar in times of uncertainty, but they also tend to favor the US dollar in times of certainty in relation to the Canadian dollar. After all, you get paid to hold on to this pair, and several comments from various Fed officials over the last couple days have suggested that interest rate cuts aren't anytime soon in America. That means that we will continue to see things play out to favor the greenback over the Loonie.
If we were to break down below the 1.37 level, then I would look to reset and perhaps buy the dollar closer to the 1.3550 level. This trade, I believe, probably tries to get the market back to the 1.3950 level; anything above there would be a bit surprising but possible, I suppose.