USDCAD
The USD/CAD rose by more than 30 basis points as traders reacted to the CoT report released on Friday, the falling crude oil prices, and the rising number of coronavirus cases.
Turns out, most hedge funds and other speculators have been increasing their short bets on the Canadian dollar. According to the CFTC, these speculators have increased their short bets to more than 29k contracts. This is the highest they have been since March 27, when they rose to 29.2k. The non-commercial section of the CoT report is watched closely because it is where hedge funds and money managers are usually in.
The Canadian dollar is not the only currency funds have been shorted. The net short positions on the British pound have reached the YTD high of 6.7k. Similarly, more investors have shorted the Australian dollar, Brazilian real, and New Zealand dollar. On the other hand, these investors have been bullish in the euro, Russian rubble, Japanese yen, and Swiss franc.
The USD/CAD pair rose as the price of crude oil continued to fall. The price of West Texas Intermediate (WTI) has fallen by more than 6.50% while that of Brent has fallen by more than 1.50%. This is happening even as US and Canadian drillers slash production at the fastest pace in years.
Data from Baker Hughes released on Friday showed that rig counts declined to 325 from the previous 378. In contrast, the rigs were about 670 when the year started. There were more than 800 rigs in the beginning of May last year.
As the fourth-biggest oil exporter in the world, the Canadian dollar is affected significantly by the price of crude oil. A recent piece by Pension and Investment said:
“While the U.S. and Canada often feel oil price shocks in succession, Canada bears the brunt as its economy is more reliant on the health of its oil and gas industry, which in 2018 accounted for 7.7%, or C$160 billion ($117.3 billion), of the country’s nominal GDP.”
The Canadian dollar also declined because the number of coronavirus cases. While the chart is flattening in the United States, the number is rising in Canada. According to Worldometer, the number of daily reported cases reached a record of 2,760 on Saturday. This was the highest daily confirmed cases in the country.
As a result, the number of active cases has risen to more than 30,884 while deaths have risen to more than 3,600. This rise implies that the country could extend the current lockdown, which will affect trade.
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On the daily chart, we see that the USD/CAD is on pace for the third consecutive day of gains. The pair managed to move above the 50-day exponential moving average at 1.3900. Bulls are now in total control and they appear determined to test the 23.6% retracement level at 1.4265. This trend will likely continue today. However, on the flip side, a close below the support at 1.3900 will signal that there are still sellers in the market. This will invalidate this trend as bears attempt to retest the 50% retracement at 1.3800.
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