Canadian dollar breaks borders

By | February 3, 2020
InstaForex
Canadian dollar breaks borders
analytics5e37f79da282f.jpg

The currency of the Maple Leaf Country did not start very well for the first month of this year. Experts have recorded the strongest drop of the “loonie” in relation to the US dollar. However, in spite of the inharmonious circumstances, the hope for the growth of the Canadian dollar remains.

According to experts, in early 2020, the Canadian dollar behaved as a violator of the boundaries established earlier. This violation occurred downward, which deprived the Canadian dollar of an advantage over the greenback. Since the beginning of January 2020, the loonie has sagged significantly against the US dollar and has collapsed from 1.2950 to 1.3240 and 1.3241 over the greenback.

analytics5e37f84ba54a9.png

On Monday, February 3, the USD / CAD pair is trading in the range of 1.3249–1.3250, trying to get out of the given framework. However, the circumstances do not favor the “loonie”, thus it lost over to its rival which is the US dollar.

analytics5e37f8a978bc8.png

Over the past month, the pair has repeatedly approached a strong resistance level of 1.3270. Some experts believe that after reaching this milestone, the “loonie” then reached the Canadian border, appealing to the famous phrase of the writer O`Henry. It should be noted that in this range, both the trend line of the downward spiral and the previous December maximum, as well as the 50% correction of the USD / CAD pair passed.

Experts do not exclude that such a heap of “border facilities” will stop the tandem’s growth and send the USD / CAD pair down. They also reaffirm that if this scenario is realized, the downward trend will drag on for a long time. The immediate objectives of this decline will be the levels of 1.3130–1.3170. In case of the upward movement of the pair, these levels will be overcome, and the tandem will go towards the previous highs of 1.3330, which is a kind of “old border”.

Furthermore, experts consider the negative economic performance of the Maple Leaf Country as a reason for the current collapse of the Canadian dollar. At the end of the fourth quarter of 2019, GDP growth rates may return to similar low indicators of the previous period. Recall that in the third quarter of last year, Canada’s GDP growth did not exceed 0.3% year on year. In December 2019, the unemployment rate in the country remained high which is about 5.6%. According to analysts, this is higher than the September and October values, when the threshold did not exceed 5.5%.

However, experts consider the drop in oil prices to be the leading factor in the January weakening of the “loonie”. Recall that in the Canadian economy, the export of black gold plays a key role. In the first month of 2020, the cost of WTI crude oil fell from the previous $ 65.6 per barrel to $ 51.4. The main driver of this decline was fears about the spread of coronavirus from China.

Meanwhile, the beginning of February was more optimistic for the Canadian dollar as analysts suggested. The reason for this was the relative stabilization of the external background. The oil market has found timid hope after OPEC statements calling for an emergency meeting this month. The catalyst for changing cartel plans was a significant drop in oil prices. It is possible that after an unscheduled meeting of OPEC, the tense situation in the black gold market will stabilize.

Analysts also added that in the near future, the Canadian dollar will be able to expand the current price borders and have reckoned that the loonie will strengthen its position, although it is beyond its power to squeeze out its rival which is the greenback. However, it is still able to strengthen slightly, this experts reassured.