Canadian Dollar Forecast: CAD Declines Ahead

Canadian dollar set to lose ground vs us dollar again

The US dollar is forecast to restart its push higher against the Canadian dollar after a recent setback that saw the CAD stage a long overdue relief rally.

The move higher was driven primarily by the recovery in oil prices following a multi-month long decline.

The recent gains in the Canadian dollar exchange rate complex (CAD) have begun to retrace as we head into the weekend with fresh losses being recorded in global currency markets.

However, weaker price action in WTI and brent crude over the second half of the week suggests some cracks are appearing in the crude’s strong recovery rally.

  • At the time of writing the US dollar to Canadian dollar exchange rate (USD/CAD) is at 1.2488.
  • The euro to Canadian dollar exchange rate (EUR/CAD) is at 1.4258.
  • The pound sterling to Canadian dollar exchange rate (GBP/CAD) is at 1.9095.

PS: The above are inter-bank wholesale quotes. Your bank will affix a spread at their discretion when making international payments. To get closer to the market we suggest considering an independent provider, they have delivered up to 5% more FX on occasion.

According to Shaun Osborne at TD Securities the outlook continues to favour the USD:

“Weak domestic data and softer—despite the overnight bounce—crude oil tripped the CAD up yesterday and suggests that the mini correction seen earlier in the week may have run its course.

“USDCAD picked up noticeably through the session yesterday, confirming the short-term bases that was established late Tuesday.”

Bond Yield Spreads Point to US Dollar Advances

TD Securities tell us that US-Canada yield spreads are moving in very supportive fashion as far as the USD is concerned, with the entire yield curve trading at a yield premium for the USD over CAD-bonds.  

“We think this constitutes a significant source of support for the USD and, potentially, points to more upside pressure on funds in the next few days, if the Canadian data disappoint (which is where we are positioned in terms of expectations for today’s Canadian Trade data and Friday’s Employment report),” says Osborne.

Technical Forecasts for CAD

Technically, Osborne thinks the USD may be resuming its push higher; gains may not come quite as quickly as in the past few weeks but the fundamental backdrop is positive for the USD.

“We think that the technical situation is aligning bullishly across a range of time frames again after the mini-correction in the market over the turn of the month,” says the TD Securities analyst.

TD suggested buying around 1.2560 late yesterday so this morning’s levels still look attractive for longs.  

“Technically, the intraday chart is setting up bullishly potentially for USDCAD via a basing/reversal formation (possible inverse Head & Shoulders) signal; look for USD gains to pick up above 1.2570/75,” says Osborne.