Canadian dollar

The U.S. dollar/Canadian dollar ( U S D / C A D ) formed an outside month in March — a lower low and higher high than February — complemented by a higher close.

Outside months have formed in the USD/CAD 25 previous times since March 1976, and there is some evidence to suggest further upside movement — i.e., U.S. dollar strength vs. the Canadian buck — will follow.

“Dollar/Canada bounces off notable low” highlighted the fact that the currency pair’s March low of 1.1298 occurred near the level of the late-1992 low (see the chart accompanying the story), which will certainly give reason for chart watchers and pundits to fan the flames of a potential upside move. Another factor is the U.S. Federal Reserve is still in rate-hike mode, having bumped up the benchmark Fed Funds rate on March 28; another increase is expected in May. Higher U.S. rates will make the American dollar more attractive.

It shows the market reversed abruptly to the upside after establishing its low on March 2. The rally brought the pair as high as 1.1745 by March 29 before price plunged on March 30, and then rebounded on March 31. At that point the rate was still trading above the February high. Analyzing other outside months in the USD/CAD rate over the past 30 years revealed a bullish tendency in the subsequent price action, although with any pattern analysis based on a small number of examples extracted from long term data, the implications must be put in perspective.