The USD/CAD pair has been feeling the pressure from the “risk-off” environment in North American equity when Bank of Canada’s Poloz spoke and said that the path back to a neutral range is ‘highly uncertain’ due to housing and investment. This situation can provide the narrative to make a bullish case for the USD/CAD (bearish Loonie), because of the lack of investment linked to a deteriorated state of global uncertainty. Additionally, USMCA implementation risks have risen, which will continue to undermine capital flow support in Canada.
The medium-term outlook for the Loonie is starting to deteriorate and the balance of external risks to the Loonie has shifted to the downside. Unless the crude oil WTI begins to rise sharply towards the 70s, it might not look pretty for the Loonie. Furthermore, the Fed (dovish) versus BoC (neutral) divergence might end soon, with a riskier Loonie to pay the consequences of better fundamentals in the US than in Canada.
To make things more interesting, the Canadian retail sales number came in at -0.1 percent when the expected was -0.3 percent. This improvement and a substantial crude oil price this morning is making the Loonie erase most of yesterday’s losses. Technically speaking though, 1.3150 is a strong support, and it is finding another support at around 1.3190 at the time of this writing. If the USD/CAD falls below the 1.3100 handle, or below 1.3068 (the lowest rate since November 7th), it might change the technical view, but for now, the USD/CAD still trading in an uptrend.