Loonie Breach of Support Points to Decline: Technical Analysis

The Canadian dollar may fall to its lowest level in two weeks against its U.S. counterpart now that it has broken a key short-term support level, according to Toronto-Dominion Bank, citing technical indicators.

Canada’s currency has weakened to the upper end of a range of 97 cents per U.S. dollar and sustained the move, opening it up for a further loss to 99.02 cents, according to Shaun Osborne, chief currency strategist at TD Securities. That would be its weakest level since Sept. 6. TD forecasts that the Canadian dollar will depreciate to $1.05 by the end of the year, according to a Bloomberg survey.

“The general flow of news and sentiment continues to suggest the risk is for dollar-Canada to move a little higher still,” Osborne said today in a note to clients. The cross is “liable to remain higher in the short run,” he said.

The currency, dubbed the loonie for the image of the waterfowl on the C$1 coin, declined 0.4 percent to 97.79 cents per U.S. dollar at 11:57 a.m. in New York. The loonie earlier weakened as much as 0.7 percent, its biggest drop since July 23. One Canadian dollar buys $1.0226.

The loonie will approach short-term resistance in the 98.40 to 98.45 cents area if it continues to depreciate, according to Osborne. Push back from this resistance may result in the Canadian dollar rising to the high 97 cents to low 98 cents area, he said.

Long Bets

The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop, known as net longs, rose to 101,860 contracts in the five days ended on Sept. 11, up from net longs of 66,555 a week earlier, according to Commodity Futures Trading Commission data compiled by Bloomberg.

This bullish sentiment has been damped by disappointing Chinese manufacturing data and falling oil prices, Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, wrote today in a note to clients.

“Should sentiment turn against the Canadian dollar, the risk that there is accelerated selling as traders move to unwind long exposure,” Sutton said. “An environment of slowing global growth and weak oil prices is typically not a supportive environment for the Canadian dollar.”

A Chinese manufacturing survey pointed yesterday to an 11th month of contraction. Oil futures rose for the first time in four days, and traded at $92.27 per barrel in New York.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Support refers to a level where buy orders may be clustered.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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