Canadian Dollar Poised to Sink Below 1.38

With global political uncertainty abound after the surprising EU Parliament elections, which saw far-right parties gaining across most European nations, financial markets are taking a risk-off approach this morning. The most notable results were in France, where President Macron called a snap election for the end of June in what is being described as an all-or-nothing gamble.

This, in addition to Friday’s strong US jobs report, continues to buoy the US dollar. The dollar is benefiting from its traditional safe haven status as well as interest rate differentials. With both the Bank of Canada and the European Central Bank cutting rates last week and not ruling out further cuts, they are now officially moving in the opposite direction from the Federal Reserve, which is not expected to reduce interest rates anytime soon.

As a result, the Canadian dollar, after losing a full penny against the US dollar on Friday, is now sitting at a five-week low. The USD/CAD pairing is expected to push but not break past the 1.38 range. If it does break through the 1.38 range, it won’t happen until Wednesday of this week when the US inflation numbers are released, followed by the FED interest rate announcement. While there is an almost unanimous agreement that the FED will be on hold, the FED’s comments post-announcement will be closely analyzed.

The Canadian dollar could potentially sink below 1.38. The comments accompanying the rate cut by the Bank of Canada were interpreted by market analysts as surprisingly dovish. With officials from the BoC scheduled to speak on Wednesday and Thursday of this week, if they choose to walk back their comments, the Canadian dollar could consolidate. However, if they confirm their dovish posture, the Canadian dollar could sink to the mid-1.38 level.

The Canadian dollar is currently trading at 1.3774 CAD against the US Dollar.