USD/CAD: Potential to rise as high as the 1.40 level – DBS Bank

USD/CAD is pulling higher from a recent 1.2403 low. As Benjamin Wong, Strategist at DBS Bank, notes, there are signs that it is attempting to breakout of its prior compression range of 1.2288-1.2964, resolving USD higher.

BoC’s rate hikes do not appear to aid CAD strength

“There are some indications that the range compression of 1.2288-1.2964 needs a resolution. The chances are that we are getting closer to a breakout move for a medium-term trend change, and is likely to resolve in a bullish USD outlook. Momentum should build up once the MACD (moving average convergence/divergence) signal awakens.”

“Bank of Canada’s rate hikes do not appear to aid CAD strength as it is masked out by a hawkish Fed. Rather, Canadian terms of trade and domestic oil prices are the determinants.”

“Looking at the long-term quarterly chart, one can see that a move for a change in wind direction for USD/CAD has typically ranged from 18-24%, and if 1.2062-1.2007 is a tradeable double bottom, a prolonged USD spike can build the case for a move towards the 1.40 line. Naturally, that requires USD to first break the 38.2% Fibonacci retracement of its recent 1.4668-1.2007 at 1.3024.”