The Canadian dollar is back.
A month ago, the thinking was that the Federal Reserve would continue to hike to levels well-beyond the Bank of Canada's 4.50% overnight rate and that was followed by a crumbling of global growth sentiment on a bank run and oil falling to the lowest levels in a year.
Since the bank run has stabilized but the market is increasingly confident that the Fed is nearly done hiking and OPEC swooped in to reverse the losses in oil.
That's prompted a sharp turnaround in USD/CAD from 1.3862 on March 9 to 1.3338 currently -- a two-month low.
Can USD/CAD continue to fall?
Technically, the pair will soon run into a series of previous lows stretching from 1.3218 to 1.3273. If those don't break, it would reinforce a pattern of higher lows that's been ongoing for nearly two years. If that cracks, it would highlight and confirm a double top below 1.40 with a measured target of 1.26.
To get there, I would need to grow more confident in the outlook for global growth and energy. That could come from a further rise in crude prices due to OPEC cuts but that would need to be matched on strengthening global demand, particularly from China.
On the domestic side, the Canadian housing market is at an inflection point as the spring real estate market ramps up. So far, pricing is holding up ok but I don't have confidence that demand will last. Every day homeowners are hit with rate resetting higher on 5-year mortgages and that could put more homes on the market.
So for now, I'm cautious on further declines in USD/CAD. There's good support nearby so the risk-reward doesn't argue for selling now but I'm open to the idea of selling on a break of 1.3200.
