The Canadian Dollar continues to show weakness, maintaining a subdued tone after spending much of the week trading lower against its US counterpart. According to Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret, the currency has shown little movement during the latest trading session while still reflecting underlying softness.
Trade Uncertainty and Central Bank Focus
Market participants remain in the dark about the current state of US-Canada trade negotiations, contributing to the Canadian Dollar’s recent drift. Additionally, traders are positioning themselves ahead of tomorrow’s Bank of Canada policy decision, which adds another layer of uncertainty to the currency’s near-term direction. The widening spread between US and Canadian rates compared to last week has played a role in shifting the spot price’s fair value estimate, with the US Dollar still appearing overvalued relative to the equilibrium estimate of 1.3651.
🚨 it's a f@cking bloodbath 🚨
The Canadian dollar down almost a full percentage point just today and we are a multi decade low now, as predicted.
Meanwhile Canada doesn't have a Finance Minister except a seat warmer and our politicians will be vacationing for a month.
The… pic.twitter.com/XcJ6cY5dej
— Kirk Lubimov (@KirkLubimov) December 18, 2024
Despite significant monetary easing already implemented, Bank of Canada policymakers appear to have room to maintain their current stance while evaluating economic conditions. Market expectations, as reflected in swap pricing, suggest virtually no probability of a rate adjustment at tomorrow’s meeting.
Technical Levels and Resistance Zones
The USD/CAD pair pushed above 1.3750 during earlier trading, approaching the mid-July peak near 1.3775. Chart analysis suggests the US Dollar’s upward momentum remains intact, with short-term trend indicators pointing to continued bullish pressure and constructive price action. However, the mid-1.37 range represents a zone where increased selling pressure against the US Dollar might materialize.
From a technical perspective, the critical resistance area extends from 1.3775 through 1.3785, where the 100-week moving average sits, up to 1.38, which marked the late June high. On the downside, support levels are identified at 1.3725 to 1.3730.
Trading Implications
The persistent weakness in the Canadian Dollar and uncertainty surrounding trade talks could weigh on risk sentiment for North American assets. This development may prompt traders to maintain defensive positions in cryptocurrency markets, particularly given the negative sentiment surrounding traditional currency pairs.
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