Oil Prices, Covid-19 Infections May Weigh on CAD

Canadian Dollar, USD / CAD, Crude Oil, Coronavirus Restrictions, IGCS – Speaking Points:

• Stock markets crawled cautiously higher during APAC trading ahead of tomorrow’s FOMC meeting.
• Stagnant crude oil prices and a burst of coronavirus restrictions may limit the high potential of the Canadian dollar.
• A possible double pattern could trigger a bullish reversal for USD / CAD rates.

Asia-Pacific Summary

Stock markets traded cautiously higher during the Asia-Pacific trading session as investors turn their attention to tomorrow’s meeting on monetary policy FOMC. Australian ASX 200 (+0.44%), Japanese Nikkei 225 (+ 0.21%), Hong Kong Hang Seng Index (+ 0.17%), and Chinese CSI 300 (+ 0.23%) all gained ground.

In FX markets, the Australian Dollar declined on surprisingly soft inflation figures, while the US dollar associated with a refuge gained ground. Gold prices fell below $ 1770 per ounce of excess, as yields on U.S. 10-year treasuries climbed 1 basis point higher. Crude oil prices stood relatively at $ 63 a barrel.

Looking ahead, Canadian retail sales figures for February show the economic issue.

DailyFX Economic Calendar

Climbing Covid-19 Infections, Stagnant Oil Prices For Weighing CAD

As mentioned in previous reports, the considerable tightening of restrictions in several Canadian provinces may open the door to the Loonie losing ground against its top colleagues in the short term.

Ontario has extended its current urgent home order, introduced earlier this month, from four to six weeks and limited essential store operating skills to just 25%.

The province has also set up checkpoints along the border with Quebec and Manitoba to curb the movement of residents, and the capital of Toronto’s health authorities has ordered the closure of workplaces if they have more than five confirmed cases of the new coronavirus.

Source – Mondometer

The gradual increase in OPEC + crude oil production may also limit potential gains for the commodity-sensitive Canadian dollar in the short term. The cartel agreed to restore about 2.1 million barrels a day of supply to the market between the beginning of May and the end of July.

Continued consolidation of crude oil prices, and a somewhat annoying coronavirus background could anchor the currency against its U.S. dollars in the coming week as attention shifts to a meeting of the Federal Open Market Committee tomorrow.

USD / CAD Daily Chart – Double Bottom or Bear Continuation?

Diagram prepared by Daniel Moss, created with Tradingview

From a technical perspective, the USD / CAD exchange rate outlook seems relatively bearish, as prices are below the psychological support at the 1.2500 mark and fall to the lowest levels in 4 weeks.

Indeed, with the RSI and MACD tracking firmly below their respective neutral midpoints, the path of least resistance seems to favor the downside.

However, if the annual low (1.2365) remains intact, a double bottom inverse pattern could be played that may inspire a rebound to challenge the trend 55-EMA (1.2575) soon.

That said, if key support yields, a push to challenge the psychologically impressive 1.2300 mark could be on the cards.

La IG Customer Feeling Report shows that 75.89% of traders are net-long with the proportion of traders long to short at 3.15 to 1. The number of traders net-long is 7.72% higher than yesterday and 68.68% higher than last week, while the number of traders net- short is 6.65% higher than yesterday and 40.04% lower than last week.

We usually consider the opposite view of crowd sentiment, and the fact that traders are network-long suggests USD /CAD prices may continue to fall.

Traders are more online than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD / CAD bearish counter-trading bias.

– Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss