Canadian dollar price forecast 16 March 2021

2021-03-16

Loonie being tough. Forecast as of 16.03.2021Dmitri Demidenko

If the Japanese yen and the Swiss franc are among Forex outsiders in 2021, then the Canadian dollar can be safely called one of the market favorites. The end of the [USDCAD][1] sellers’ attacks may result in [EURCAD][2] price fall and vice versa. Let us discuss the Forex outlook and make up a trading plan

Weekly Canadian dollar fundamental forecast

Looking at the greenback’s pace on Forex, one can’t help but wonder which currency will be able to resist the USD? Judging by the strong oil positions, the optimistic outlook for the economy, and rumors about the normalization of the BoC’s monetary policy, the Canadian dollar will become the leader of the opposition. So far, the loonie is in the lead among more than three dozen currencies tracked by Bloomberg. The Canadian dollar has strengthened against the US dollar by 2% since the beginning of the year. [USDCAD][1] bears are not going to give up their positions just like that.

In the lead-up to the March meeting, the BoC’s officials knew what consequences its hawkish stance could cause for the loonie, inflation, and exports, so they tried to sound more dovish. The BoC refused to cut the volume of weekly asset purchases under the QE program from the current CA$4 billion, announced its intention to keep the overnight rate at 0.25% until 2023, and noted that accommodative monetary policy is rational due to the weak labor market. It makes sense to normalize monetary policy if the labor market starts to recover. Less than two days later, the February statistics on PMI showed an employment growth of 259.2 thousand and an unemployment drop from 9.4% to 8.2%, which is the lowest level since the beginning of the pandemic. How could the loonie not grow up?

Overnight rate dynamics

Source: Bloomberg.

Concerning such statistics, indicating the economy’s resilience to lockdowns and its readiness to boost in the next few months, the Bank of Canada is likely to be under severe pressure. The chances of the QE program reduction and overnight rate increase before 2023 will grow, which will support [USDCAD][1] and [EURCAD][2] bears.

The loonie failed to maintain its 3-year high against the greenback due to a pullback in oil prices. Since October, black gold has added about 80% to its value, so the consolidation seems inevitable. Due to the reluctance of global demand to grow, the market is experiencing the most serious contango since January, which indicates an oversupply.

Oil market conditions

Source: Bloomberg.

I don’t think the rumors about the commodity market super-cycle are exaggerated. [Brent][3] and [WTI][4] are trading in the uptrend amid the rapid growth of the global economy. This fact, in addition to an improvement in global risk appetite and a narrowing yield spread between US and Canadian bonds, gives Scotiabank reason to predict a decline of [USDCAD][1] prices to 1.2. Wells Fargo officials believe the loonie will continue to outperform most of its G10 competitors in 2021, while TD Securities recommends buying it against the euro.

Weekly [USDCAD][1] and [EURCAD][2] trading plan

In my opinion, the Canadian dollar is one of the few world currencies that are able to show resilience during the situation triggered by the rise in US debt market rates. This year, the loonie is the Forex favorite, and if it manages to hold its positions after the March Fed meeting, most likely, it will continue to strengthen. In the meantime, it makes sense to hold [USDCAD][1] and [EURCAD][2] [short trades][5] formed from levels 1.2615 and 1.4985 and move stop-orders to breakeven to insure against Jerome Powell’s unpleasant surprises.

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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