Created on January 03, 2025

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• During the trading session on Thursday, we’ve seen the US dollar rally about 38 basis points against the Canadian dollar, which in and of itself would not be overly exciting.
• However, it’s also worth noting that yields in America have been somewhat subdued. So, this goes to extreme Canadian dollar weakness.

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When you zoom out, you can see that the 1.45 level is an area that has seen some pushback a couple of times in the past. The question of course is, should you short it, or should you buy it? I think we’ll know that answer in the next couple of weeks, but I will tell you this, it does not look like a great short at this point.

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After all, when those pullbacks occurred, the drastic ones that they were, we had actual reasons for it to happen. Right now, it looks like the United States is going to run rough shot across everyone, not just Canada. The United States is one of the few economies around the world still growing at a robust pace. So, this sets up an interesting trade for the USD/CAD. Yes, the US dollar will probably break the 1.45 level eventually, and that will be especially true if we get a hotter than anticipated jobs number. Over the next couple of days, I think we will have a situation where we probably favor short-term dips and more of a consolidation before we break to the upside. Remember, liquidity is a little bit of an issue right now. But the truly interesting part of this trade is that Canada sends 80 to 85% of its exports into the United States, and that’s something that you can’t sleep on.

Canadian Dollar COULD Outperform Others Though

Think of it this way. If your biggest customer is doing well, that does help. So, there might be an argument to be made for buying the Canadian dollar against weaker currencies. Against the US dollar is a tall order right now for anyone. All one has to do is look at the Australian dollar, New Zealand dollar, Euro, and even to a lesser extent, the pound, although the pound has held up fairly well. With this, I think you continue to see buyers on dips if and when we get that daily close above the 1.45 level, we could see the loony really crumble. I think you probably have to be positive of this market all the way down to the 1.40 level. I recognize that there is support at 1.4350 over the last couple of weeks, and 1.42 historically has been important as well. So, it would take a pretty significant turnaround to make all of that happen. At this point, yields in America are higher than everywhere else. You get paid to hold on to this. Everybody knows this.

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