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September 10, 2021

USD Vs. CAD, Which Is The Better Play?

Frank Cabibi

9/10/2021

The summer was a constant back-and-forth struggle in sentiment between the two currencies. Now that we are nearing the tail end of Q3, things have changed from a monetary standpoint. The Fed keeps flashing signals of potential tapering this year and making investors consider a sooner-than-expected rate hike.

Our outlook

Both countries have great GDP q/q's meaning that they are rebounding at a very fast rate compared to other countries. The thing to consider between these two powerhouses is whether investors expect a raise in rates. Canada's overnight stayed the same at 0.25% although this week's beat in jobs numbers could suggest that the Bank of Canada might be looking to hike sooner. Right now, it's tough to say, but the USD looks like the best contender for higher rates to come quicker now that analysts believe the first hike to come in 2022. Looking short term, CAD seems to have the upper hand, but in the next 6-12 months time, USD might have an advantage as the economy is handling the pandemic better than Canada with a 5.2% unemployment rate vs Canada's 7.1%.

Trade Setups

USDCAD

USDCAD looks like it formed a head and shoulders pattern on the 1D chart which could be the start of a downtrend from a technical standpoint. The 50 and 200 DMAs lie below as well as a support level around 1.24841. However, if price can break out of its consolidation zone (above 1.26697ish range) we could get a higher move to the first shoulder around 1.28029.

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