In the middle of February, when USD/CAD was trading at 1.2515, I talked about how it could hit 1.28. Now that this target has been reached, the move could extend to 1.30.

At the time, I argued that the shrinking trade deficit in the US and the first trade deficit for Canada in 32 years would lead to more strength for USD/CAD. This morning, Canadian GDP numbers were much weaker than expected. In the fourth quarter, the economy contracted at the fastest pace since 1991, 17 years ago.

USD/CAD is also trading higher because of broad dollar strength. The dollar has skyrocketed as the Dow breaks 7k to hit the lowest level in 11 years.

USD/CAD is trading well into the Bollinger Buy Zone. There is scope for a bit of a retracement, but as long as the currency pair holds above 1.2600, we could see a move to 1.30. If USD/CAD does manage to trade at 1.30, we could see a gap higher.

Poor Canada has a lot more trouble ahead due to its sensitivity to the US economy. The only silver lining is the rally in oil prices.



Kathy Lien is Director of Currency Research at GFT, and runs KathyLien.com.