Friday has seen the US dollar bounce a bit against the Loonie, but with the weekend talks in Pakistan – the world simply waits.
USD/CAD
During the session on Friday we have seen the US dollar rise slightly against the Canadian dollar bouncing from the crucial 200-day EMA. That being said, this is more about the global risk appetite than anything else. I don't really think it has a lot to do with the Canadian dollar at the moment.
It could be worth noting that the 10-year yields in America remain somewhat elevated. We're right around 4.32% right now as traders are closely monitoring what is going on in the discussions between the Americans and the Iranians over the weekend. If those discussions go well, that should be good for the Canadian dollar in the sense that the safety trade will be over.
Global Risk Appetite and Interest Rates
Oil will plummet, so I think the Canadian dollar gaining against the US dollar would be somewhat limited, but you could make an argument for the US dollar softening overall, and that is probably where Canada gets to take advantage. Ultimately, this is a market that will remain very difficult to see big swings in because of the situation with oil.
While most traders look at the Canadian dollar through the prism of oil, the reality is there is a lot more to the Canadian dollar against the US dollar than just oil. In fact, the Americans produce plenty of crude oil themselves. So, with this, I think this is purely an interest rate play which does favor America, especially if we start to see concerns about energy supply.
So, with all of that, I think you have got a scenario where you are waiting to see what the risk sentiment is going to be like after the weekend meetings, and unfortunately, that is a very difficult game to play because you are in a reactionary position. Regardless, from a technical analysis standpoint, being near the 200-day EMA does make this an interesting area to perhaps see buyers. Underneath here, I would be looking at the 1.3750 level as a bit of a floor as well.