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CANADIAN DOLLAR CRUSHED POST SERIES OF EVENTS

The Canadian dollar is trading around multi-year lows against most of the major currencies. The USDCAD pair jumped to four-year high yesterday after the Fed interest rate decision. The pair traded above the 1.1260 level. There was a series of events, which hammered the Canadian dollar. The highlight was the speech from Poloz, who cautioned the investors that the economic growth in the Q1 could be on the soft side.

Increase in Wholesale Sales

Capital Trust Markets
Capital Trust Markets

On Wednesday, at GMT 13:30 PM, the Canadian Wholesale sales data was published by the Statistics Canada. The expectation was of a 1.0% rise in the wholesale sales. However, the outcome missed the expectations by 0.2%, and registered an upswing of 0.8%. Remember, this is an advance from the previous reading, and overall gain in January. So, I do not think that the data was bad at all. The statement also highlighted that “the Wholesale sales rose 0.8% to $50.0 billion in January, following a decline in December. Gains were recorded in all subsectors except motor vehicle and parts. Excluding this subsector, wholesale sales rose 1.4%”. It is worth noting that the sales were up in five provinces in January. The gains were mainly driven by the agricultural supplies industry, chemicals, allied product industry and the recyclable material industry. One more key thing to note from the release is that the inventories also rose 1.4% to $62.3 billion in January.

Highlights of BOC’s Governor Stephen Poloz speech

On Tuesday, in a speech in Halifax Nova Scotia, the Bank of Canada’s Governor Stephen Poloz said that he cannot rule out a rate cut in the medium term. The main reason for such a statement was the concern of downside risk for the CPI rate. His word of caution was enjoyed by the Canadian dollar bears, as the Canadian dollar fell sharply against most of the major counterparts. It’s hard for me to believe that they will actually deliver a rate cut in the near future. I think it’s more of a verbal intervention to push the Canadian dollar further. I still remember when the Mark Carney was the Governor, he never tried to push the Canadian dollar down. Nevertheless, the Canadian dollar sellers might soon get a reality check in the near future, in my opinion.

Fed’s tapering

One more event, which affected the USDCAD was the fed interest rate decision. The Fed decided to taper again in March and reduced the QE pace from $65B to $55B.

Fed Pace of Treasury Purchases – $30 billion

Fed Pace of MBS Purchases – $25 billion

Technical Analysis

The pair after breaking an important triangle on the monthly chart headed higher. The pair is now coming closer to an important resistance zone, in my opinion, as can be seen in the chart shown below. There is a monster trend line around the 1.1300 level, and not to forget that the pair is testing the 50.0% Fibonacci retracement level of the last major down move from 1.3063 high to 0.9420 low. A break and close above the trend line and resistance zone would call for a larger wave up in the medium term.

Prepared by Aayush Jindal, Chief Technical Analyst at Capital Trust Markets

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