The US dollar has rallied against its northern neighbor on Monday, as the rate differential continues to favor this move. However, are we a bit overdone at the moment?
USD/CAD
The US dollar has rallied significantly during the trading session here on Monday against the Canadian dollar to break above the 1.39 level. The 1.39 level is an area that has been significant resistance a couple of times and piercing that level of course is a big victory for the US dollar. That being said, I think we are a little overdone at this point, and interest rate differential continues to be a major driver here.
But I think a short-term pullback opens up the possibility of finding value in the greenback. As rates in the United States continue to climb, that interest rate differential becomes a little bit more pronounced. Despite the fact that oil is sharply in focus, the reality is that Canada does not hold that against the US economy as the United States is a massive producer of 14 million barrels of light sweet crude a day. Other types of petroleum add up to 20 million, the largest producer in the world.
Strategic Market Outlook
With that being said, I think you have to look at this as a market that you're looking to take advantage of short-term dips whenever you can with the 200-day EMA near the 1.38 level as a short-term floor and the 1.40 level above as a potential ceiling.
Nonetheless, I don't want to chase this all the way up here; I'd rather find a little bit of value and therefore I think you can take your time. Eventually, we could make our way to the 1.40 level, and you obviously will have to watch the latest headlines. If we continue to get bad news out of the Middle East, we may not get a pullback. Nonetheless, patience is probably going to be the best way to play this market.