Canada’s Dollar Set to Drop to 4-Month Low, RBC Says

The Canadian dollar is poised to weaken to an almost four-month low versus its U.S. peer as Ukraine turmoil weighs on risk appetite, according to Royal Bank of Canada, citing trading patterns.

The currency’s close at a three-month low yesterday has “morphed in to a full-blown trend change,” with C$1.0999 and C$1.1052 serving as the next resistance levels, George Davis, chief technical analyst at RBC Capital Markets in Toronto, wrote today in a note. The loonie, as the currency is known for the image of the waterfowl on the C$1 coin, had strengthened 3.6 percent in the second quarter, second most among the greenback’s 16 major peers. It last weakened to C$1.1052 on April 23.

“A further deterioration in the risk backdrop has sustained broad-based USD strength,” Davis wrote. “Yesterday’s close above C$1.0958 has confirmed a full-blown trend change.”

The loonie fell yesterday to its weakest level since May 5 after crude oil, the nation’s biggest export, and stocks declined amid a flareup of tension in Ukraine, where Russian troops were massing on the border.

Canada’s currency appreciated 0.3 percent to C$1.0925 today in Toronto trading after a report showed Canada’s merchandise trade surplus in June was C$1.86 billion ($1.69 billion), the most since December 2011, Statistics Canada said. Economists forecast the trade account would be balanced, according to the median of 17 forecasts in a Bloomberg survey.

“We were looking for a bit of a pullback today, which the data corroborates,” Davis said via e-mail, referring to the U.S. dollar. “But would use pullbacks as a buying opportunity based on the recent bullish trend reversal in U.S. dollar/Canadian dollar,”

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