Canadian Dollar Outlook: CAD Extends Rally After Yesterday’s BoC Decision

USD/CAD FUNDAMENTAL BACKDROP

The USD/CAD exchange rate began lower this morning as a result of lower US Treasury rates (a lower expectation for US inflation) and a weaker dollar. The Bank of Canada's (BoC) 50 basis point rate boost yesterday spurred a CAD surge, clawing back recent losses. In the long run, though, I prefer the dollar because I don't believe the Canadian economy can keep up with the Fed's aggressive policy. As we go through the rightening cycle, the dollar should strengthen versus the loonie.

Crude oil prices are still high, but their impact on the USD/CAD has lessened since the US is now a net crude oil producer. This can be seen in the USD/CAD price movement, where the CAD has been relatively quiet in comparison to prior crude oil price increases.

We have a couple option expiries for the New York cut later today (see details below). As the cut approaches, prices on huge expiries tend to approach the strike price. USD/CAD is now slightly higher than the below strikes, suggesting a move down later in the day.

1.2550 (289M) USD/CAD, 1.2560-70 USD/CAD (923M)

USD/CAD ECONOMIC CALENDAR As we move into the Easter weekend, retail sales and consumer confidence in the United States will round off the week, while Canadian inflation will take center stage next week.

TECHNICAL ANALYSIS

USD/CAD seems to be headed for a retest of the psychological support level of 1.2500, which is part of a building bear flag. This gloomy prognosis is definitely plausible in the short term, but as I have said, USD upside is my favored strategy after Q2.

IG CLIENT SENTIMENT DATA: MIXED

Retail traders are now significantly LONG on USD/CAD, according to IGCS, with 62 percent of traders holding long bets (as of this writing).