Canadian Dollar Risks Decline on Crude Oil Price Pullback

[B]Fundamental Forecast for Canadian Dollar: [/B][B]Bearish[/B]

The Canadian Dollar finished the week modestly higher against its US namesake, but the currency’s inability to close near year-to-date highs leaves short-term momentum to the downside leading into the coming weeks’ trade. The USDCAD currency pair dropped for three consecutive trading days and briefly breached the psychologically significant C$1.0600 mark. Yet it serves to note that oil prices likewise failed to hold near fresh highs, and there is clear risk for near-term pullback. Domestic economic data proved largely better than expected but had relatively little influence on price. Instead, the USDCAD continues to track Crude Oil prices and broader risk market sentiment. Continued strength in financial market risk barometers would bode well for the Canadian Dollar, but the threat of near-term reversal looms large for the recently high-flying currency.

The Canadian Dollar has ridden the wave of renewed optimism across financial markets, rising in tandem with similarly buoyant Crude Oil prices. Yet Crude Oil itself remains stuck in a consolidative range, and its inability to break higher on several successive attempts leaves clear risk of near-term pullback. A relatively quiet week of Canadian economic event risk suggests that the domestic currency will trade almost-solely on developments in other markets. Potential exceptions include early-week International Securities Transactions and Canadian Retail Sales reports. The former is expected to show that foreigners invested a net C$9.5 Billion into Canadian Securities in July. Said number would represent a modest pullback from impressive May and June results, but an at-consensus print would nonetheless underline solid foreign demand for Canadian securities. The subsequent Retail Sales release is likewise expected to show robust consumer demand, but a recently impressive Wholesale Sales result means that only the most surprising of outcomes will elicit strong reactions out of the USDCAD.

Canadian Dollar traders should keep a close eye on developments in global financial markets—especially commodity prices and Crude Oil futures. If any of these key asset classes break their recent price ranges, the Canadian Dollar may follow suit. - DR