I’ll start this analysis with the Rider that my track record on the Loonie is not that strong and I don’t spend as much time analysing it as I do on the other majors. Nevertheless, the CAD is an important component of the overall FX jigsaw puzzle and I have a strong sense that we are soon to see some very extended CAD weakness.
There are people who are a lot better qualified than me to comment on the fundamentals behind the CAD and I prefer to focus on where it’s come from and whether it’s at fair values. Remember that USD/CAD fell from 1.60 in a virtual straight line (see chart) through the GFC and the question is whether it’s fall was over-extended. If it was, then levels near 1.0000 can be considered cheap and it would not be considered ‘over-valued’ until it reached 1.30+ imho. Could the Fed ‘taper’ be the trigger for this move? Possibly, but that will depend on how the macro players are positioned.
Other pairs like GBP/CAD (see chart) still have a long way to go before they reach even their minimum retracement, and the bullish momentum in this pair is clear to see. I haven’t been actively trading any CAD pairs and therefore have no strong feel for what the big levels might be.
Timing is all that matters in the FX market but my sense with the CAD is that we are in for a big move lower which will take USD/CAD towards 1.20 and GBP/CAD to 1.90.