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US dollar is likely to strengthen further against Canadian dollar.
Economic fundamentals are strengthening in US, whereas Canada's economic activity weakened further.
Monetary policy remains divergent. Bank of Canada (BOC) is expected to lower rates further from current 0.75%, whereas US Federal Reserve is looking to deliver at least one rate hike this year.
Canada is a commodity driven economy and its major export crude oil has broken the recent 8 week long congestion to the downside. Canada prices its oil using WTI benchmark, which is likely to remain weaker over the coming months.
Above fundamental makes this trade very lucrative.
We have been calling for weeks to sell loonie against dollar (see snapshot commodity pairs) and believe given the risk reward (still above 1:1) the trade can still be taken. However, it is better to average the entry price by buying at dips.
Resistance area around 1.285 is likely to provide opportunity to buy at dips.
Trade idea -
- Sell loonie against dollar, with a target of 1.285 as initial one, 1.325 area as second and 1.385 as third. Stop loss should be kept around 1.22 as initial and 1.19 as next.
