The Canadian dollar is the top-performing G10 currency today as it plays catch-up to the positive momentum in risk assets this week. USD/CAD is down 56 pips on the day to 1.4005.
The drop brings some notable levels into play, starting with the big figure. Below that are a pair of recent lows at 1.3990 and 1.3982. In terms of the technicals, the 1.3982 level was also precisely the 38.2% retracement level from the May-June rally. If that cracks, I would highlight the 50% retracement at 1.3899 as a target or even 1.3817, which is the 61.8% retracement.
On the fundamental side, the Canadian economy posted strong Q2 GDP numbers and that’s led to something of a snapback but the bigger picture is more important. The market is feeling better about global growth and the sustainability of AI capex. In addition, today’s gold rally is a powerful Canadian dollar tailwind. Trade numbers in the past year have shown big swings in Canada’s trade balance based on gold exports. I suspect there could also be big fund flows in/out of Canadian mining companies, which are some of the largest in the world.
The crude oil side is a drag at the moment. There’s optimism Hormuz will reopen and that’s weighed heavily on oil this week. Despite that, the loonie has held the line this week.
Zooming out, there will need to be some clarity on a US-Canada trade deal to get some real investment into Canada.
This article was written by Adam Button at investinglive.com.