Canadian Dollar Swan Dive (Or Loonie Leap?)

U.S. Dollar Likely to Gain Versus Loonie: Technical Analysis

By Chris Fournier

Aug. 26 (Bloomberg) -- The U.S. dollar will likely extend its two-day advance against its Canadian counterpart after posting a “bullish daily reversal” yesterday, according to Citigroup Inc.

A rally in the greenback to C$1.1126 against the Canadian dollar, nicknamed the loonie, “is expected,” technical analysts Tom Fitzpatrick in New York and Shyam Devani in London wrote in a note to clients today. “A close above there would be quite a bullish development over an extended period.”

Canada’s currency dropped 1 percent to C$1.0974 per U.S. dollar at 4:43 p.m. in Toronto, after sliding 1 percent yesterday, its first loss in six days. One Canadian dollar buys 91.12 U.S. cents. A move to C$1.1126 would represent a 1.4 percent rise in the value of the U.S. dollar.

Crude oil may have posted a “significant high” this week and is at risk of falling further, the strategists also wrote in the note. Crude is Canada’s biggest export. A $1 drop in oil prices lowers the Canadian dollar by about 0.3 cent against the U.S. dollar, according to TD Securities estimates.

A bullish daily reversal occurs when a security falls below the previous day’s low, then closes above the previous day’s high. Technical analysis is the study of trading patterns for signals that may foreshadow price changes in a security, commodity, currency or index.

To contact the reporter on this story: Chris Fournier in Montreal at

The US dollar appears to be making a comeback against other currencies in the US Dollar Index as we mentioned in an previous post. Although it is early in the rebound phase, Zig Zag analysis shows the beginning of an upward trend. As the author of the Bloomberg article notes, the Canadian dollar functions to a large extent as a petro currency. A significant rise in the US dollar usually means a pullback in crude oil which would drop the Loonie. A twenty dollar US drop in crude to the $50 mark translates roughly into an 84 cent Canadian dollar. Incidentally, the Canadian Finance Minister has gone on record recently saying he would like to see an 83 cent dollar.
While we are still convinced that the US dollar will ultimately drop against other currencies in the long term, it appears that it will have a temporary rebound as the stock market bear market rebound runs out and resumes a downward trend as investors move out of "risky" stocks into "low risk" treasuries.