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Canadian Dollar Short-Term Forecast

I have been long USD/CAD since August and I expect the U.S. dollar to rise further against the loonie on speculation that a severe slowdown in the global economy will have a negative impact in the export sector of the Canadian economy. On the other hand, lower oil prices should help the U.S. economy by alleviating pressure in the U.S. consumer which makes nearly 70 percent of the U.S. economy. Moreover, a significant deterioration of interest rate differentials in favor of the U.S. dollar is likely to keep the Canadian dollar under pressure. In fact, according to overnight index swaps, which measure interest rate expectations for the next twelve months, while the Bank of Canada is expected to cut rates by 100 bps, the Fed is expected to make a net increase of 25 bps over the next 12 months. My trading recommendation is to buy USD/CAD for 200 pips in profit potential with a stop in a daily close below 1.15.

source: Tradestation

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Written by Antonio Sousa, Chief Strategist for DailyFX.com
To contact the author of this report, e-mail asousa@fxcm.com