Canadian dollar price forecast 14 April 2021

2021-04-14

Canadian dollar trying to catch up with greenback. Forecast as of 14.04.2021Dmitri Demidenko

Leaders don’t just become leaders. The Canadian dollar has many advantages, and if it manages to use them correctly, the [USDCAD][1] downtrend will be able to recover quickly. Let us discuss the Forex outlook and make up a trading plan

Fundamental Canadian dollar forecast for six months

Strong demand for Canada’s rich natural resources, attractive local bond yields, and proximity to the US economy, which will help recover positions of the Canadian export market, made the Loonie one of the race leaders for the title of the best-performing G10 currency in 2021. Unlike the greenback, whose positions will be very volatile this year, the Canadian dollar has a good chance of beating the USD.

The BoC’s intention to taper the QE allows the Canadian bond yields to compete with the Treasury yields. This played into the hands of the Loonie in its struggle with other currencies, except the greenback. At the end of the first quarter, the CAD showed the best rise since 2007 against low-yielding currencies, including the yen and the franc. The high credit rating and limited funding in US dollars allow the CAD to outperform the emerging markets’ currencies.

Dynamics of the Canadian dollar against the Swiss franc

Source: Bloomberg.

Most crude oil benchmarks prices increased by 22-23% in the first quarter, contributing to [USDCAD][1] downtrend. Since the second half of March, [Brent][2] and [WTI][3] price consolidation resulted in the pair’s transition to a trading range of 1.251-1.262. At the same time, the 21-day correlation of the trade-weighted CAD rate and the Bloomberg Commodity Index exceeded 70%, which is the highest value in the last five years. In my opinion, the strong connection between the analyzed pair and the oil-driven commodity market will remain. The OPEC+ forecast for the increase of global demand by 100,000 b/d and global GDP up to 5.4% allows counting on further strengthening of the Canadian dollar.

Due to its territorial proximity to the US, Ottawa is one of the main beneficiaries of Washington’s massive fiscal stimulus. This fact allows 41% of Canadians to expect the country’s economy to improve over the next six months, reaching the highest figures since 2010.

However, it cannot be said that [USDCAD][1] bears have no weak points. The vaccination rate in Canada is slower than in the US. Only 22% of the Canadian population received at least one dose, while only 2.2% received two injections. The US’ figures look more encouraging, 57% and 22.6%. At the same time, the proportion of infected per 100 thousand Canadians for the first time in the history of observations overtook the US figures.

Dynamics of COVID-19 cases

Source: Bloomberg.

Banks’ opinions on the prospects of [USDCAD][1] differ. The CIBC believes that the pair price will rise as the markets overestimated the BoC’s readiness to normalize monetary policy, while the factor of accelerating global economic growth has already been priced. The BMO expects the greenback price to drop to CA$1.22.

[USDCAD][1] trading plan for six months

I remain a CAD bull and forecast [USDCAD][1] to decline towards 1.22 and 1.2 over the next 6 and 12 months. While oil and the Canadian dollar are playing catch-up with the US dollar, the rapid growth of the world economy and global oil demand will allow them to recover the existing trends. A successful breakout of the support at 1.251 may serve as a reason for entering USDCAD shorts.

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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