Canadian Dollar price forecast 27 January 2021

2021-01-27

Oil gets in Canadian Dollar’s way. Forecast as of 27.01.2021Dmitri Demidenko

The US dollar sellers decrease their activity in January against the background of the high speed of the vaccination campaign in the US and slow inoculation rates in other countries. The [USDCAD][1] bears were also involved. Let us discuss the Forex outlook and make up a trading plan

Fundamental Canadian Dollar forecast for six months

Sometimes it’s better to be small. The Fed, the largest central bank in the world, cannot even think about a possible QE rollback. Tiff Macklem, the Governor of the Bank of Canada, said that if the Canadian economy develops following the regulator’s forecasts, it will not need such a considerable quantitative easing as it is now (CA$4 billion a week). When one central bank intends to stand on the sidelines, and the other thinks about normalizing monetary policy, the latter’s currency should strengthen. But the [USDCAD][1] prices are not going to grow.

According to the Bank of Canada, after a contraction in the first quarter, the country’s GDP will begin to expand during the rest of the year actively. It is associated with the widespread introduction of vaccines (previously, the regulator predicted that they would become widely available by mid-2022, in January, this period shifted to the end of 2021), liftings of lockdowns, and spending money received by consumers as part of fiscal assistance packages. Bloomberg experts share identical views.

Canada GDP Forecast

Source: Bloomberg.

The IMF is not so optimistic. On the contrary, the organization that raised estimates for global GDP lowered its forecast for Canadian economy from + 5.2% to + 3.6% for 2021. Most likely, the IMF was affected by a weak start at the beginning of the year, problems with vaccinations, as well as the new US President’s slogan “Buy American!”. According to Canadian officials, these factors can cause severe damage to trade relations between the two countries.

As of January 24, 20.5 million people (5.2% of the population) were vaccinated in the United States, 816.5 thousand (1.1%) in Canada. At the same time, Pfizer intends to accelerate the supply of vaccines to the US, and Joe Biden promises to inoculate 100 million Americans in the first 100 days of being in power. On the contrary, Canada suffers from problems with the Pfizer plant in Belgium, like the EU. The supply of vaccines has slowed down and will resume in the required quantity only by mid-February. The vaccine race directly affects Forex exchange rates. It makes people forget for a while about monetary policy, which still depends on GDP growth, liftings of lockdowns, and the vaccination campaign’s speed.

It should be noted that [USDCAD][1] bears are hindered not only by vaccination rates, but also by the slowed growth of a key component of Canada’s exports, oil.

Dynamics of [USDCAD][1] and Brent

Source: Trading Economics.

If in October-December, [Brent][2] and [WTI][3] prices showed rapid growth on expectations of a recovery in global demand and the firm intention of OPEC+ to stabilize the market by reducing production, then at the beginning of 2021, a lot has changed. The slow roll-out of vaccines and the risks of a double recession in selected oil-consuming countries have forced oil to consolidate.

[USDCAD][1] trading plan for six months

In my opinion, the oil pullback will contribute to the correction of [USDCAD][1] in the short-term investment horizon. In the future, the downtrend will recover. I expect that in 3, 6, and 12 months the pair will be near 1.265, 1.23, and 1.245 marks. For these six months, I would suggest selling on growth.

Price chart of USDCAD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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