Technical Analysis

Now the dots are connected on the big Canadian dollar drop today

Today’s Canadian dollar’s decline was ultra-curious given:

  1. Canadian GDP today was strong at 2.9% vs 1.5% expected
  2. Oil is higher today
  3. AUD and NZD are each up 0.5% today
  4. Stocks are only down modestly (and were flat when the loonie was dumping)

I highlighted that it was curious as it kicked off and probably flow-driven. Well here are the flows: Canadian bank RBC is buying HSBC’s Canadian operations for C$13.5 billion.

I saw this headline earlier and didn’t connect the dots (shame on me) but it all makes sense now. The deal hedging was put on almost immediately after the deal was announced early in Toronto hours and the CAD-selling stopped when London closed.

Even on the strong Canadian GDP print, there was a 15 pip drop and it looks like someone sold heavily into that, which is exactly the kind of liquidity the CAD -sellers would be looking for.

So the question now is: Can CAD continue to retrace?

If you just take AUD and NZD, I think this pair could fall 1%. Maybe discount that slightly because of AUD and NZD torque to China and the optimism on lockdowns there but that still leaves plenty of room for a loonie recovery. Moreover, oil is hanging in nicely today today despite hopes for an OPEC+ cut getting buried.

There will be some cross-currents with Powell tomorrow and a heavy data slate but all else equal, I’d expect a fall back to 1.3500.

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