The US dollar has been all over the place on Tuesday, as we are looking at this level as a potential area to work off some of the froth from before.
USD/CAD
The US dollar has been very noisy against the Canadian dollar during trading on Tuesday, as we continue to hang around the crucial 1.42 level. The 1.42 level has been important for some time, and I do think you have to look at this through the prism of a market that is basically going to continue to favor the US dollar over the longer term, but the question now at this point in time is whether or not things have gotten a little overdone. I think they probably have, so it's not a huge surprise to see that maybe we have to go sideways.
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If we turn around and break down from here, the 1.41 level is an area that I think will continue to see support. Anything below there then opens up the possibility of a move to the 1.40 level, where I think there's even more support. Simply put, I have no interest whatsoever in trying to buy the Canadian dollar. I think the Canadian economy continues to be a major issue in this pair, but again, the US dollar can't go in one direction forever.
Interest Rate Differentials and Central Bank Policies
With this, I think ultimately this pair probably goes looking to the 1.43 level, but you will have to be patient. The interest rate differential favors the US dollar slightly, and of course, there are traders out there betting on the Federal Reserve raising rates 2 more times between now and the end of the year.
If that ends up being the case, then it does make sense that the US dollar remains strong because, quite frankly, the Bank of Canada is in a situation where it cannot tighten. I don't have a scenario right now where I'm willing to short this USD/CAD pair, but it is worth noting that maybe some influence from the oil market could come into the picture and make the Canadian dollar a little bit more attractive, but I think we are a long way from there at the moment.
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