FxWirePro Call Review: Loonie likely to weaken towards 1.35 area

In earlier December, in an article named, “FxWirePro: Canadian dollar likely to weaken further to test support around 1.32 area”, available at http://www.econotimes.com/FxWirePro-Canadian-dollar-likely-to-weaken-further-to-test-support-around-132-area-1037060 , we suggested that the loonie (Canadian dollar) is likely to weaken further, even though it has weakened more than 700 pips since topping around 1.216 in September.

In that piece, we wrote, “While hike pause has led to the initial weakness in the Loonie, it is hardly the factor that has propelled 700 pips decline. The current trade dispute between the United States and Canada with regard to Lumber and NAFTA (North American Free Trade Agreement) has clearly been weighing on the Loonie. In addition to that, Canada’s heavy crude has been broadly left out of the recent rally in oil prices. Very large discount in Canada’s West Canada Select (WCS) has also been weighing on the Loonie. As of today, while Brent benchmark is trading at $63 per barrel, WCS is trading at $23 discount to Brent.”

Since the piece, the discount for WCS has widened further and is currently at $30.7 per barrel compared to the Brent. It is also important to note that the Bank of Canada (BoC) Governor Stephen Poloz said that Canadian economy is doing extremely well and less monetary accommodation needed going forward, however, that failed to boost the Loonie, which indicates that it is likely to weaken further.

We expect the USD/CAD to test range high around $1.35 area as can be seen in the chart. The pair is currently trading at 1.287 per dollar. Interim target is at 1.32 area.