Canadian dollar caught up in the USD recovery. What's next

Technical Analysis

Author: Adam Button | usdcad

USD/CAD climbs back over 1.22

When you look at the swan dive in USD/CAD since May, there are two things going on:

  1. Canadian dollar strength
  2. US dollar weakness

There is no reason to believe the Canadian dollar is about to give back any significant portion of its gains but the US dollar is another question.

So how much of this drop was USD weakness? And if the dollar recovers, how high can it bounce?

For a cursory look, let's go back to May 4, which was the top in USD/CAD.

Here is how every currency has performed against the US dollar since.

The Canadian dollar is easily the leader but there is plenty to think about. The Australian and New Zealand dollars have benefitted from some of the same global factors that helped the Canadian dollar, but they've also had their independent struggles (especially NZD).

It's probably fair to take the mid-point and say the if the US dollar can undo all the damage since May, it could rally 6%. That would take USD/CAD back to 1.30.

Could a Trump tax plan do it? I believe if the market likes it and thinks it can pass, it can and it will. But those are two big question marks.

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