Canadian Dollar - Are We There Yet?

April - Positive seasonal trend for CAD/USD

by Brooke Thackray, Alphamountain Investments

Many investors are patiently waiting for the Canadian dollar (CAD) to start outperforming the U.S. dollar (USD) and keep asking the question: are we there yet? The good news is that CAD/USD has a strong seasonal trend in April. The value of the Canadian dollar relative to the U.S. dollar (CAD/USD) is eff ected by many diff erent variables, including monetary policies, fi scal policies, governance, investment outlook and commodity prices. Despite the interac- tion of many diff erent variables, the Canadian dollar has positive and negative seasonal trends. The Canadian dollar tends to outperform USD in April.

There are two main reasons that the Canadian dollar tends to perform well relative to the U.S. dollar in April. First, April has historically been the strongest month of the year for oil and energy companies. As a net exporter of oil, the Canadian economy and Canadian dollar benefi t from higher oil prices. Second, the Canadian government fi scal yearend fi nishes on March 31st, allowing the government to put forth positive economic forecasts, that tend to support a stronger Canadian dollar.

CAD/USD’s strong seasonal trend in April has been persistent over the long-term (see Exhibit 1) and has historically been the strongest month with an average gain of 0.6% (Exhibit 2). CAD/USD’s performance in April stands out not only with its strong average gain, but also with its 70% frequency of outperformance compared with 50% for all months from 1971 to 2014.

Technical Assessment

Over the last two years we have seen CAD/USD decline in autumn, consolidate at the beginning of the next year and then perform positively in April (Exhibit 3). Recently we have seen a similar pattern to last year with CAD/USD correcting sharply in autumn 2014 and starting in January, consolidating at $0.78 to $0.81. A pattern does not repeat itself just because it is the same pattern. What is important is that the positive technical attributes that existed last year at this time, are forming this year. Currently, CAD/USD is consolidating just before its period of seasonal strength, leading to a potential break above the consolidation box and a break through of its downward trendline. Overall, CAD/USD is seeing up well for the start of its seasonal period in April. An early entry signal would be triggered If CAD/USD were to break above $0.81 within the four week period before the start of the April trade.

Read/Download the complete report below:

Thackray Seasonal Trade 2015 MARCH - MEDIA- REVISED Ver02(1)