Loonie goes beyond the rules. Forecast as of 30.11.2022

CAD, nicknamed the “loonie,” is the currency abbreviation or currency symbol used to denote the Canadian Dollar. A drop in oil prices, high demand for safe-haven assets due to China, and expectations of a soon recession in the US and in the world press down the loonie. However, the USDCAD rallied up as the situation started to improve. Let's discuss the topic and make up a trading plan.

Fundamental Canadian dollar forecast today

The Consensus Canadian Dollar Forecast predicts short & long term fluctuations of USD & CAD. In autumn, there have been many paradoxical movements in Forex, which, most likely, were of a speculative nature. The US dollar first rose in response to Jerome Powell's statement about the slowdown in the process of raising the federal funds rate, and then fell in response to strong US employment statistics. The euro strengthened, amid the decline in the global risk appetite due to protests in China. At the end of November, it was the turn of the Canadian dollar. The USDCAD soared at the fastest pace in at least a month, despite the release of strong Canada's domestic data.

In the third quarter, Canada‘s economy grew 2.9% against the forecast of +1.5% due to the expansion of net exports by 8.6%. Government spending and stockpiles supported the GDP rise. However, consumption fell for the first time since 2021. This time, it fell by 1%. In addition to the second consecutive drop in companies’ capital accumulation by 5.1% and slow GDP growth in September, this suggests that the BoC monetary tightening has its effect.

Moreover, the current account deficit in July-September of CA$11.1 billion turned out to be greater than Bloomberg experts predicted. This could be a reason to revise down net exports data in the third quarter.

Dynamics of Canadas current account

Mixed economic data do not allow us to accurately predict what the Bank of Canada's December move on the path of monetary tightening will be. BMO Capital Markets believes that nothing in the GDP data keeps the BoC from raising its overnight rate by half a point. On the other hand, Capital Markets forecasts a 25-basis-point rate hike. As a result of the previous meeting, the rate rose by 50 basis points to 3.75%, the highest level since 2008.

From a fundamental point of view, the USDCAD rally is fueled by falling oil prices, expectations from the UK bank HSBC to sell its unit in Toronto to Royal Bank of Canada, as well as a drop in the global risk appetite amid a recession approaching the global economy. The bond yield curve is inverted not only in the US but also in the global debt market, indicating that a recession is near and inflation is slowing down.

Dynamics of global yield curve

At the same time, it is not easy to explain the sharp rise in USDCAD at the beginning of the week ending December 2. Oil grew amid expectations of OPEC+ production cuts, while stock indices and the US dollar have stabilized. According to the Canadian Imperial Bank of Commerce, the rally is due to capital flows based on questionable reasons. Most likely, speculators want to buy out the loonie on crosses after dumping its rate. If so, then the analyzed pair could quickly recover lost positions.

USDCAD trading plan today

Unless Jerome Powells speech impresses investors, the USDCAD will quickly roll down to 1.3465 and 1.343. As long as the price is below 1.3565, one should sell the pair. Otherwise, when the price returns to the abovementioned level, it will be a reason to buy.