6:15 am Pacific
Canadian Dollar Update
Technical outlook plus a 90-second video clip that sums up the fundamental picture.
The Canadian dollar is progressing as expected since our most recent update 2 weeks ago (An Important Look At The Loonie).
As we outlined in that piece, not only is the loonie a great study in TA, but its technical posture reinforces the case that something big is brewing during this 2nd half of 2023 and will involve a significant upside breakout in the Venture.
Key takeaways from John’s 3-year weekly CDN Dollar chart:
Part 1 – The Peak & The Downtrend
- The loonie peaked in early 2021, just above 83 cents around mid-year – only a few months after the Venture topped out around 1,100;
- At the time the loonie peaked, RSI(14) levels had been in overbought territory above 70% for about 6 weeks;
- The loonie fell below its uptrend channel and 200-day moving average (SMA-40 on this weekly chart) before a rally failed to overcome measured Fib. resistance at 81 cents;
- The 200-day SMA went into decline in late 2021 and that was really the beginning of a strong bearish phase that took the CDN Dollar all the way down to a low of about 71.5 cents in early October (bear market bottom for the equity markets as well).
Part 2 – Stabilization & The New Uptrend
- The CDN Dollar has been gradually working its way higher since last October, touching the top of its downtrend line at about 76.20 cents
- The most important development is a recent reversal to the upside in the 200-day SMA – reversals like this historically have led to significant upside moves (at the same time, the U.S. Dollar Index 200-day SMA has gone into decline);
- Sell pressure (CMF), dominant from late 2021 to early 2023, has turned into modest buy pressure;
- Key resistance is 76 cents (Fib. and the top of the downtrend line);
- RSI(14) is in a clear uptrend and is threatening to push past resistance near 60%;
- ADX indicator confirms a weak bullish trend with plenty of room to strengthen;
- Over the coming weeks during Q3, and likely by mid-August, we expect the CDN Dollar to break out above its downtrend line after several failed attempts to date
The loonie closed just slightly under 76 cents Friday.
When You “Don’t Think” About Monetary Policy…
Fundamentally, despite last week’s Stats Canada numbers for June, inflationary pressures in Canada are likely to be more stubborn than those in the United States given a range of government policies at the provincial and federal levels, putting upside pressure on the loonie. The Bank of Canada is getting no help whatsoever from governments in its inflation fight, and from the socialist Trudeau regime in particular. Of course it was Trudeau (see video below) who famously stated in the last election, “You’ll forgive me if I don’t think about monetary policy.” Is this an individual, a former high school drama teacher, with an ounce of economic sense?
No one more than Trudeau has made life MORE difficult for Canadian families since his election words (see below) captured by his media friends in August 2021, while he was flanked by 3 mask-wearing, virtue-signalling Liberals in the fresh outdoors on the Vancouver waterfront. Everyday life in Trudeau’s Canada has become much more expensive, thanks to a federal government whose policies are fanning the flames of inflation. Ironically, this has disproportionately hurt the groups “progressives” claim to be the biggest defenders of – lower income folks.
It takes a combination of effective fiscal policy and the right monetary strategy to stamp out inflation (or prevent it from happening in the first place). When the fiscal policy isn’t helping, all the pressure gets applied to the monetary side and this drives up rates and keeps them elevated for longer. In the U.S., House Republicans now in the majority have put the brakes on the worst spending instincts of the Biden administration. In Canada, it’s the opposite – the Liberals’ NDP bed partners are encouraging them to spend, spend, spend, regulate, regulate, regulate.
Crude Oil prices are firming up and that’s another factor that will keep upward pressure on the loonie over the coming months. One of the best ways for North America to keep inflation in check is to ramp up the supply of Oil, so we are completely energy independent, but of course that would “kill our planet” according to the “climate change” cult. It’s okay with Trudeau and Biden, though, if Iran and other evil regimes pump more Oil (another example of liberal hypocrisy).
And about the “training of 1,000 new firefighters” referenced in text on Trudeau’s podium – well, during the Trudeau era, the number of total firefighters in Canada has plummeted 17.4% from 152,650 in the 2014-2016 period to 126,000 according to the 2022 Census Report (90,000 volunteers, 26,000 career firefighters). That’s a loss of 26,650 firefighters (hence we are paying Brazilians, Mexicans, Americans and Australians to come to Canada to help fight our fires). This from a federal government that obsesses every day about “climate change” and how it’s “burning up the planet” and threatening Canadians – yet they’ve presided over the biggest drop in firefighters in the nation’s history! “Progressives” excel at that kind of hypocrisy.
Provincial governments, meanwhile, have failed with respect to forest management practices that haven’t effectively addressed a steadily increasing fuel load problem in the forests over the last decade+. We need to be carrying out far more prescribed burns, for example, but all the bureaucratic red tape around that has greatly restricted this common sense strategy.
Every time there’s a new forest fire, we hear screams of “climate change”, “climate change”, “climate change” – helps drive the left’s ideological agenda while covering up government incompetence. And the media is all in on the deception.
Government in Canada has become way too big, unfocused, and demonstrably ineffective. Woke ideology has also infected governments, federal, provincial and municipal, like a cancer. Until Canadians wake up and realize that government right now is the problem, not the solution, nothing will change – they will get the government they deserve.
This 90-second news clip – everything about it – shows why we’re in the mess we’re in.
The dollar will continue its uptrend but not for all the best reasons.
August 2021
