Is the Canadian dollar getting ahead of itself today?
The loonie continues to sit in a bit of a range against the dollar over the last two months between 1.2900 and 1.3200 for the most part. Overnight gains in USD/CAD failed short at sustaining a break above the 100-day MA (red line) and that sees price slip a little thereafter.
In trading today, the loonie is one of the better performers underpinned by Poloz’s upbeat comments on a NAFTA deal earlier in Asian trading. Despite the optimism, there still isn’t any word on how the key issues will be resolved when it comes to US-Canada trade negotiations and time has basically run out at this point.
The real risk to come in US trading later for the loonie will be the possible announcement by the US on the NAFTA text. It is said earlier in the week that this would leave out Canada and I would expect a knee-jerk reaction lower in the loonie if and when that happens.
The near-term chart continues to show that bias remains in favour of USD/CAD buyers as price stays above the two key hourly moving averages. But upside is now capped by the 100-day MA @ 1.3055. Even if Canada misses out on the deadline here, there is still reason to believe that eventually some form of deal will be struck.
And that hope will still keep USD/CAD in-check within the range of 1.2900 to 1.3200 as highlighted above. From here, I see the real risk for a large extended move in the pair to only come if there isn’t a trade deal between the US and Canada.
The closer we are to that outcome, the more pressure that will weigh on the loonie and we’re potentially looking at USD/CAD moving towards the year’s highs and beyond at that point. On the flip side, in an event of a deal, I would say that’s a fairly optimistic outcome for Canada and the loonie but the gains may not stretch out too much as that remains the much-expected outcome still at this point in time.