The Canadian dollar closed at a 30-month high against its southern counterpart, profiting from several factors that have shifted to its favor over the past weeks.
Risk sentiment has stayed relatively positive with markets preferring to look past the current global virus cases to the vaccine, a spring recovery and even to the hope for another round of US economic stimulus from Congress. Canada’s stimulus of C$100 billion has been a steady support to its economy.
Oil prices have recovered with their best two weeks since the March collapse and were unaffected by the recent OPEC Plus meeting. Commodity prices are at their highest levels of the pandemic.
The potential counterbalance to that in the Loonie, a better performing US economy, seems trapped in the Covid-19 closures and political disagreements in Congress over a new stimulus package. A new spending and support bill in the US would assist balance the accounts but it would not offset the other fundamental factors that favor the USD/CAD.
Technically, the USD/CAD is still sliding, breaking all ranges back to May 2018. Friday’s small rebound at the lower border of the channel is not a technical reversal but a market disinclination at the end of the week and after a 2.3% decline since November 23 to break new ground.
The RSI is oversold for the first time since June, yet, a rebound in the USD/CAD based only on technical considerations is unlikely, given the fundamental factors in play.
We remain bearish with a possible rebound if the US fundamental factors are positive within the week.
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