FxWirePro: USD/CAD could retrace lower on Dollar and oil

Canadian Dollar, has been one of the biggest gainer from late January as oil showed some signs of rebound and Dollar weakened across the board. Canadian economy is suffering unprecedented hardship not only due to lower oil price alone. While lower oil price has stagnated business investments, manufacturing downturn in US is not helping Canada's manufacturing sector either. Moreover, Mexico, with its revamped manufacturing sector posing threat to Canadian manufacturing.

Economists point out, Canada's over dependence on oil and US economy has exposed Canadian Dollar to a depreciation spiral. Canada has traditionally transported 96% of its crude to US but for past few years, US has been running very large inventory and production going higher. So demand for Canadian heavy crude is coming down. This year Canadian heavy crude traded below $10/barrel. Now crude from Middle East are piling in US gulf coast, posing challenges to both US and Canadian crude.

So, Canadian Dollar need to depreciate further to ease the ill effects on economy.

However, despite the above outlook, as we at FxWirePro, expects that crude could stage a bit more correction and Dollar weaken in the near term USD/CAD may push lower.

Trade idea -

Buy loonie against Dollar @1.388, with target around 1.335 and stop loss around 1.41 area. We expect loonie could gain as much as 1.29 area.