Loonie Heading North?
Today's Idea
Given many traders' demands for higher yielding assets, some currency traders may be drawn to growth currencies. While this can be seen as a positive, the outside influence of energy and precious metals prices could threaten to derail a possible rally. Technically, the chart is at a critical resistance level, but no upside breakout has been confirmed. Some traders may wish to consider buying a March Canadian Dollar futures contract on a stop at 1.0160, with an upside target of 1.0300 and a stop at 1.0075. The trade risks roughly $850 for a potential profit of $1,600.
Fundamentals
Canadian Dollar futures continue to trade north of parity with the US Dollar. The rally in the Loonie has stalled since the middle of January due to a poor showing from precious metals and the recent decline in Crude Oil prices. Given the recent positive economic data and relatively tame inflation figures in the US, some currency traders may look to move back into higher yielding currencies. The data suggests that the global economy continues to make progress, and central banks may be able to extend expansionary policy in light of the tame inflationary data. The price of Crude Oil, which is Canada's largest export, may be what decides the near-term direction of the Canadian Dollar. The front month Oil contract has been on the decline for the third consecutive week and has broken through some key downside technical levels, which weigh on the Loonie. Gold prices have been on the rise, which could neutralize the negative effects of softer Oil prices.
Technical Notes
Turning to the chart, we see the March Canadian Dollar trading near resistance near the 1.0150 level. Failure to break through these levels suggests prices may come back down to test parity once again. A breakout above 1.0150 may be met with resistance near the 1.0300 level. The momentum indicator is outpacing RSI to the upside, which can likely be seen as positive in the near-term.
Rob Kurzatkowski, Senior Commodity Analyst
