Shorting USD/CAD As Crude Oil Remains Bullish

USD/CAD has been bullish from summer until late December, although it failed to move above 1.30, so the zone around that level is a major resistance area. In the last month though, we have seen the trend reverse as the USD retreats from the previous 6-month uptrend, while crude Oil has turned quite bullish in the last month as well, giving extra strength to the CAD.

The trouble between Russia and the current US administration is helping push Oil prices higher, which shows that there is a stocking up in case of a conflict. This means that the CAD will benefit from it and USD/CAD will decline further. So, we decided to sell this pair after a small retrace higher to the 50 daily SMA (yellow), since it looks oversold on the H4 chart.

WTI Crude Oil H4 Chart

WTI bouncing off the 50 SMA 

Canadian November Retail Sales and December Advance Data

• Canada November retail sales +0.7% vs +1.2% expected
• December advance flash estimate -2.1%
• Prior was +1.6%
• Core sales ex autos +1.1% vs +1.3% expected
• Prior core sales were +1.3%
• Ex autos and gas +0.5% vs +1.5% prior
• New auto sales +0.1% vs +2.8% prior
• Building material and garden equipment +3.0% vs +3.2% prior
• E-commerce -3.5% vs -0.9% m/m prior
• E-commerce sales up 1.1% y/y

There’s been a shift in BOC expectations towards a hike next week but this puts a damper on that, particularly with December looking especially soft. A big part of that is omicron though and the BOC is likely to look past that and instead focus on inflation and runaway house prices.

November 2021 New House Price Index

The new home price index has risen sharply in 2021

• Prior +0.8%
• NHPI 0.2% versus 1.0% estimate
• slowest pace since June 2020
• prices rose 11.6% year over year
• prices were up in 16 of 27 metropolitan areas, unchanged and 10 and down one in another

For the calendar year, new home prices rose 10.3% in 2021 compared to +2.1% in 2020. The gain in 2021 was the largest since 1989. Prices for new homes grew 7.1% in the first half of the year and 3.1% in the second half of the year. The trend new home prices is sharply to the upside.

WTI