Investors should bet the Canadian dollar will slide to its weakest level since October as commodities drop below 3 1/2 year support levels, according to Bank of America Corp.
The Thomson Reuters/Jefferies CRB Index (CRY) of raw materials fell below 295 on May 8, a 42-month trend line, and reached 280.34 today, the lowest level since September 2010. It may decline to 265 and 257, according to MacNeil Curry, head of foreign-exchange and interest-rates technical strategy at Bank of America Merrill Lynch in New York. Raw materials account for half of Canada’s export revenue.
Curry’s firm entered a Canadian-dollar bet at C$1.0053 per U.S. dollar on May 15, with a target of it weakening to C$1.0528, he wrote to clients today. It last closed weaker than that on Oct. 3. The firm will exit the trade if the Canadian currency gains to 99.50 cents.
Brent crude oil has decreased below $109.45 per barrel, its 3 1/2 year support, opening up a possible decline to $98.27, Curry wrote. Copper touched $7,647 per metric ton in London, about $140 above its equivalent support level at $7,505. Support is an area on a chart where buy orders may be clustered.
“The CRB Index having broken its 3.5 year trend line support, crude having broken it as well and copper on the verge, we should see a weaker Canada dollar,” Curry said in an interview.
The Canadian currency traded at C$1.0249 at 1:59 p.m. in Toronto, down 0.1 percent, after strengthening earlier as much as 0.3 percent.
Net Longs Decline
Futures traders had 38,555 more contracts betting on a rise in the Canadian dollar against the greenback than a decline -- so-called net longs -- in the week ended May 22, according to the Commodities Futures Trading Commission. That was down from 70,223 on May 4, an almost 14-month high. The average net-long position for the currency pair in the past year has been 7,043 contracts.
“Guys are clearly long Canadian dollars and are underwater,” Curry said. “All the longs were put on when we were trading between C$1.0053 and 97 cents in the four months between February and May, so it’s pretty decent factor that could move price action.”
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