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What Will The Loonie Do Next?

Mar. 05, 2018 9:12 AM ETFXC
Discount Fountain profile picture
Discount Fountain


  • The loonie is meeting support against the dollar at 0.776.
  • A surprise rate hike in the United States could mean short-term depreciation in the loonie.
  • However, I see the loonie as having long-term growth potential.
  • In my opinion, a level of 0.75 would provide significant margin of safety for a long CAD/USD position.

When we take a look at the charts for the CAD/USD, we see that the loonie could be meeting a long-term support level at this point.

1-day chart

1-week chart

1-month chart

At the level of 0.7764 at the time of writing, we see that mid-December was the last time that the CAD/USD was trading at this level. While the CAD remains well below pre-2015 levels relative to the greenback, the loonie has climbed higher since 2016.

In this regard, is there a case for being bullish on the loonie right now?

From a technical standpoint, it could well be the case that the loonie bounces off support and heads back up within the 0.80 range against the dollar.

On a macroeconomic basis, the Bank of Canada is also taking a very cautious approach to raising interest rates. For instance, while an interest rate hike was expected to take place next week, a slowdown in household spending to the lowest rate in two years has prompted caution in doing so. Moreover, while GDP growth in the final quarter of 2017 came in at 1.7 percent, this was still below economist forecasts of 2.0 percent growth.

That said, could we still see a situation where the CAD rises against the USD irrespective of interest rates? In my opinion, it is quite possible. Given that we have seen the CAD/USD descend to a key support level, it is likely that growth and rate hike expectations have already been priced in.

Moreover, a further rate hike in July is being priced in by the markets, while rates have already been raised three times since last July. However, a combination of stationary rates along with the potential for a surprise rate hike in the United States, adding to the three already scheduled for this year. This

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Discount Fountain profile picture
I am an independent investor with an interest in analyzing stocks across the consumer, finance, telecommunication, and travel sectors. As a data scientist, I also have a great interest in using data tools to better understand a company's financial position.Some examples include:- Analysing total room revenue across brands for Hyatt Hotels using data visualisation: https://seekingalpha.com/article/4632039-hyatt-hotels-stock-hyatt-regency-and-china-revpar-growth-impressive- Building a Monte Carlo simulation in Python to analyze loss ratios for Zurich Insurance Group (ZURVY): https://seekingalpha.com/article/4605533-zurich-insurance-group-premium-growth-low-loss-ratio-encouraging- Calculating seasonality of customer lifetime value (LTV) for AT&T: https://seekingalpha.com/article/4634204-att-stock-growth-customer-lifetime-value-necessary-upsideDisclaimer: All of the author's articles are written on an "as is" basis and without warranty, with no guarantee of accuracy or completeness. They represent the author's opinion only and in no way constitute professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions. The author disclaims all liability for any actions taken based on the information contained in any articles published.

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