The Canadian dollar is high. Here’s why it could soar


Have a look at the USD/CAD monthly chart

The Canadian dollar is the best performing currency this year and that has caught many off guard (though not me).
We’re now sitting just above the 1.20 level in USD/CAD and that shows how critical psychological levels are. Reuters writes about how corporate treasurers are suddenly sweating Canadian dollar strength.

Schruder, managing director of corporate sales and structuring at BMO
Capital Markets, said he has seen a pick-up in the last two weeks of
pricing requests for Canadian dollar call options from companies that
don’t regularly hedge.

types of requests only come around when suddenly FX is on the radar of a
C-suite executive that might have considered it an afterthought
before,” Schruder said.

Normally, Canadian corporates love US dollars. They’re happy to hold them at almost any time and are strong hands. That’s not always the case though and it’s suddenly dawning on them that with commodity prices high, vaccine take-up poised to pass the US and the BOC on the road to hiking before anyone — they might be overly invested in the wrong currency.

If we look at USD/CAD over the past 30 years, what stands out are some particularly violent moves. On the upside, those spikes tend to be global shocks like the financial crisis, the oil bust in 2016 and the pandemic. Those were all big surprise events.

What’s less appreciated is how quick some of those declines have comes. They’re nearly as fast as the ‘shock’ moves but are the result of steady improvements in commodity prices that suddenly set off rushes to sell USD/CAD.

Are we at a similar kind of tipping point? I just had a look at FX forecast from all the big banks one year out; not a single one has USD/CAD below 1.20. That’s a sign of some serious disbelief.


If so, that’s a lot of open air below 1.20.

Here is the Canadian dollar charted with the Bank of Canada’s commodity index (excluding energy). Obviously energy is a big part of the equation but if it falls into place, then we could be having a conversation about parity before too long.

BOC weekly index

Invest in yourself. See our forex education hub.

Articles You May Like

Scalping Trading Strategy | Live Trading | EMA & Stochastic Oscillator | Options Trading Strategy
USD/JPY jumps to 140.00 neighbourhood amid broad-based USD strength, ahead of US data
Dollar bulls lose their poise, technical momentum begins to swing the other way
The AUD is the strongest in the US dollars weakest as the North American session begins