USD/CAD back below 1.3100 as loonie resists US dollar’s advances

• USD/CAD has stabilised below earlier highs and below the 1.3100 level, as the loonie holds up well versus a resurgent US dollar.
• USD/CAD continues to trade within recent ranges but looks to have broken to the upside of a short-term pennant, implying further upside possible.

It's been a choppy Monday for USD/CAD, the pair swinging from lows around 1.3050 to highs above 1.3100 and back again to current levels around 1.3080. As things stand, the pair trades marginally lower on the day by a little less than 10 pips or 0.05%.

CAD holding up well despite dollar revival

USD strengthened across the board vs all of its G10 rivals following the release of significantly more upbeat than expected US Markit PMI data at 14:45GMT, fully recouping its Monday Asia/European morning session losses versus most G10 currencies aside from CAD and GBP.

Indeed, despite the US dollar’s revival, these two currencies are still the G10 outperformers. GBP is being boosted primarily by growing expectations that a Brexit deal is only just around the corner.

The reason for CAD resilience today seems to be linked to the fact that if US data is significantly better than expected (as it was on Monday), Canada is set to benefit the most from this, given the country’s trade dependence on the US and proximity. Indeed, when the US economy does well, or at the very least better than expected as Monday’s PMI data indicated, that bodes well for Canada, and is likely good for the loonie.

Elsewhere, oil prices made decent gains on Monday and StatsCan today released a preliminary projection that Wholesale trade rose 0.9% in October.

Comments from Bank of Canada Deputy Governor Gravelle did not provoke any reaction in CAD. In terms of the highlights of his speech; he played down BoC concern regarding financial stability/financial market stress in Canada but insisted that if market stress returns, the BoC could step in with asset purchase programmes and liquidity facilities again.

USD/CAD continues to range between 1.3050-1.3100

Since sliding below 1.3100 last Monday, USD/CAD has spent the majority of its time between 1.3050 and 1.3100, only moving beyond either of these levels fleeting, as was the case on Monday.

However, it does seem as though the bout of USD strength witnessed on Monday seemed to break USD/CAD out of a short-term pennant structure. The pair has now retraced and is again testing the upper bound of this pennant structure (the downtrend that links the 13, 19 and 20ish November highs), potentially setting up a further move to the upside. If risk appetite and crude oil prices hold up, however, significant further upside in absence of a further broad strengthening in USD seems unlikely.

Perhaps the pair has again got its sights set on a retest of last week’s lows around 1.3050 and below, which ought to offer solid support. Should the bears carry the cross even further to the downside, the next notable area of support will be the year-to-date low set on 9 November at 1.2928.

USD/CAD one hour chart