Crude Decline Weighs on Canadian Dollar

The Canadian Dollar has been on a roll, rallying for the past three and a half months. Rising Oil prices and QE3 were the main contributors to the rally. The decline in Oil prices could trigger additional profit-taking, but the downside of the Loonie could be limited by QE3. While Canada has taken steps to loosen policies, those policies remain much more conservative than those in the US.

Fundamentals

Canadian Dollar futures have pulled back over the past few sessions, following Crude Oil's lead. The US is the largest importer of Canadian Petroleum and the 8.53-million barrel build in Crude Oil inventories suggests that the US Oil market is very well supplied. There are also rumblings that Saudi Arabia is attempting to decrease the price of Oil, fearing that the current price levels could quash demand. The Middle East nation is pumping about 10 million barrels a day of Crude Oil, and is willing to pump more if prices keep rising. The turnaround in the Loonie could be attributed to the unwinding of long positions established in recent weeks versus the US Dollar.

Technical Notes

Turning to the chart, we see the December Canadian Dollar moving steadily higher from the beginning of June on. Friday's spinning top candlestick indicates that the market may be poised for a pullback. The RSI indicator has been drifting sideways to lower, even as prices were rising, also hinting that a reversal may be on the horizon.