The Canadian Dollar has seen a minor increase but is trailing behind other G-10 commodities. It is up 0.1% for the day, whereas the Australian Dollar and New Zealand Dollar have both increased by around 0.4%.
Crude oil prices have stabilised, but recent declines could hinder the Canadian Dollar. The USD/CAD fair value has slightly decreased to 1.3618, but existing trading uncertainties may impact its progress towards equilibrium. The July Ivey PMI figures are set for release, following the June report of 53.3.
Current Trading Analysis
The USD/CAD has returned about half of its end-of-July gains. Current trading is stabilising around the 50% Fibonacci retracement support at 1.3728, suggesting potential short-term steadiness. Yet, recent USD bearish trends hint at further possible declines, with intraday resistance noted between 1.3775/1.3800.
We are seeing the Canadian dollar struggling to keep up with other commodity currencies, which is not surprising given the recent market environment. West Texas Intermediate crude oil prices have been soft, dipping below $75 a barrel this past week due to concerns over slowing global demand. This trend directly pressures the Loonie, making it less attractive than its peers.
The economic data from Canada isn’t providing much support either. The latest July Ivey PMI figures, which were just released, came in at 51.5, a noticeable slowdown from the 53.3 we saw in June and below market expectations. This follows last week’s jobs report for July that showed weaker-than-expected employment growth, painting a picture of a cooling Canadian economy.
Looking back at the charts from late July 2024, we saw the USD/CAD pair rally significantly before giving back about half of those gains. While the pair is currently finding some temporary support around the 1.3728 level, the fundamental picture suggests the US dollar may have the upper hand. The divergence in economic momentum between the US and Canada could push the pair higher.
Potential Trading Strategies
For derivative traders, this environment suggests that positioning for further Canadian dollar weakness over the next few weeks could be a prudent strategy. We might consider buying USD/CAD call options with strike prices just above the 1.3800 resistance level. This would allow us to capitalize on a potential breakout higher while our risk is limited to the premium paid.
Another approach would be to look at the volatility and consider selling out-of-the-money USD/CAD put options. For instance, selling puts with a strike near 1.3650 would be a bet that the pair will not break below this level in the near term. This strategy allows us to collect premium income, reflecting a view that support will hold.
