USD/CAD, Technical and Fundamental overview
The Canadian dollar, known as Loonie is one of the main commodity currencies. "A commodity currency is a currency that co-moves with the world prices of primary commodity products, due to these countries` heavy dependency on the export of certain raw materials for income. Commodity currencies are most prevalent in developing countries." (Wikipedia). The Canadian economy is dependent on Oil export and overall on the Oil industry. Therefore, any changes in the Oil industry directly moves the effects the country`s economy and the Canadian dollar. However, like any other currencies, the Loonie value also depends on Canadian Bank`s monetary policies.
In the past weeks, Covid-19 cases and news more than everything probably affected the Canadian Dollar. In the beginning, with high concerns about the Omicron variant of Coronavirus, Oil fell sharply all way down to almost $62 (December 2), while just a few days earlier it was trading above $80 per barrel. This free-fall in the oil price weakened the Loonie and sent the USDCAD to the highest level since December 2020 at a few points shy of 1.30.
With days passing, researches show that this variant is not stronger than previous variants, and even it can help to increase the body immunity against the Delta variant. Therefore it can be the beginning of the pandemic end. So, optimism returned to the markets, SP500 printed a new all-time high, DJI and ND100, both were close to their records, and Oil returned above $75 to strengthen the CAD against its crosses. USD/CAD after these market movements fell to 1.2780.
On the monetary policy front, BoC was one of the first major central banks that started tightening policies by decreasing the bond purchases amount from earlier 4B Canadian dollars. This policy at that time was in line with higher oil prices used to support the CAD. However, later and when other central banks also had hawkish decisions, other major currencies also became stronger, and this advantage of the Canadian Dollar disappeared.
For now, from the central bank`s policy front, Loonie does not have more support compared with US Dollar, and while the US Dollar Index, which measures the greenback’s performance against a basket of its rivals, is stronger above 96.10, US 10-year bond yields increasing towards 1.50%, the Canadian dollar can have a bit weaker position against US dollar, however, since Oil increasing and can support the CAD, it can be a bit stronger against its other crosses.
From the technical point of view, as you can see in the bellow figure in the USD/CAD Daily chart, 1.2780 and then 1.2615 (intersection of 20 and 50 DMA`s) are the main support line. RSI above 55 also supports the EMA crossing strategy bullish signal.