This pair has a habit of tracking oil, but it isn't a one-to-one correlation. You are right, there are a lot of factors that go into pricing an exchange rate; and if there is something more pressing than crude prices to the value of the us dollar against its Canadian counterpart, the market will follow that driver.

Additionally, these most important factor changes with time, so you just need to develop a familiarity with the market (just like you should do with any other trading venture) before jumping into the fundamentals.

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

John, I couldn't get what your answer to the question was: "Why is the canadian dollar stengthening today when oil prices are dropping?"

What is more pressing than crude prices? My feeling is that the US dollar is weakening against a broad set of currencies, and *somehow* this reset the USD/CAD pair to a lower support. But, like aeternal, I'm a rank amateur (sorry aeternal), and have no idea if that's accurate.

Also, *why* is the USD weakening? The Fed rate was zeroed awhile back and the new year's rally seems to be sparking a return to weak-dollar/foreign risk: a la the headlines. But why now? What is the difference today versus a week or more ago... Christmas?

Are we feeling placid since a major financial institution hasn't failed in a month? What happened to the auto crises, and the housing market... did it bottom?

Other than pure technical analysis (and a bunch of unworded speculative interest in options activity), I don't see a good reason.

Anyone care to comment?

I think what's driving the comparative strength (or weakness) of currencies are the relative economic prospects.

The CAD$ has recently benefitted from a perception that commodities might not be as dead-in-the-water as was widely believed before Christmas. Talk of massive infrastructure projects on the part of numerous governments have replaced pessimism about commodity demand destruction (and Canadian exports) with a small dose of hope.

Accordingly, there is a case to be made that the Canadian economy may suffer less and recover sooner than the US economy. It's propelling the Canadian dollar upward.

However, whether that premise and momentum can be sustained remains to be seen.

I think today turned the optimism around sharply. As we hear more about a housing price correction in the Canadian market we may expect disastrous 1Q/2Q earnings at the Canadian banks. On a local note, in Toronto, I'm quite amazed at the dramatic fall in home prices even at modest price points. In less than 2 months, prices around my area (a *very* modest neighbourhood) have fallen more than 25%. That's a killer correction, and will mean a lot of bad flips (not so much where I live), bad mortgages, desperate sellers and only vulture buyers coming in.

BTW I'm considering selling, not buying so I'm not downward pumping in the least... this is seeming like a plausible crisis here. In that case, my USD/CAD upside will be wiped out by a loss in home equity.

This is the real risk to Canada's economy, a Canadian real estate driven crash, on top of a US-led recession. The pundits have remarked on the CAD strength, though it seems more to do with the fact that the USD run-up is exhausted.

Opinions on the next few sessions?

"The Canadian dollar will weaken to C$1.28 in the first quarter of 2009, according to the median forecast of 37 economists surveyed by Bloomberg News. "

BTW, does this stuff ever really mean anything?

As Luis Rukeyser used to say, it means at least one of them won't be right.

Re: home prices... i think that's for condos (very oversupplied) not detached houses, yes?

funny thing is everyone here is as confused as I am about why CAD is strengthening, given macro situation (oil, usd strength vs. majors, comparative weakness of usa vs. canada, etc). this is one of those times where i think you just trade based on what the chart says, and this chart says cad is strengthening vs. dollar... i agree with others that it could go to 1.15. my charts look the same as everyone else (triple top resistance marked and breach of rising support trend line).

I think this might be one of those things where we find out why its moving this way over the next week or two...

Re: home prices; no, that's detached and semi-detached I'm talking about. My realtor confirmed it. I'm not too super extra happy about it actually. Then again, I've been saying it would happen.

I agree with you here.

There is always an explanation for why things are happening (whether you can determine it or not); but it is very difficult to sum it up into one thing. Crude, growth outlook, rate decisions, etc - all these things do not play out in a vacuum; and you certainly aren't going to see a dramatic change in each of these dynamics day by day.

We have to remember that we are looking at one one hundred of a penny with each pip movement. So essentially, our leverage is magnifying the effects of otherwise modest fundamental considerations. So, there are often subtle changes in speculation over the fundamental outlook that alter the exchange rate a little, but our leveraged account forces us to look for something very solid to explain what happened.

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

Agreed all. The chart is all that matters really when trading. However today's action is significant... As I look at USDCAD versus the UUP index, it seems that the pullback to below 1.20 in prior sessions might actually have been due to what was called "decreased risk aversion" but primarily was mass devaluation of USD during and after the holidays. Not my theory, but it makes sense looking the past few weeks.

So, with today's movement, is there a technical synopsis for this?

John, does Bloomberg provide you with information who's suppressing oil prices? I am watching the $/CAD pair and getting a little confused as to the further course of action of this pair. It would be interesting to know exactly who's buying and who's selling. Can you see trading data and lots on your platform?

Perhaps USDCAD is going back to its usual congestive/technical-breaking self. =(

Seriously though, its seems like the short-term 250 point congestion band has given way, but the dominant bull trend still has too much tout for a minor break to redefine broader market sentiment. However, the first lower swing low was essentially set with this early year basin. Unless we can first get back above 1.2375 and then make an honest to goodness test of 1.30, I think we will see bearish sentiment gain traction.

What do you think?

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

We don't pay for that additional data.

Be careful. You are heading the way of analysis paralysis. Energy prices themselves only play a small and inconsistent role for something as liquid and active as an exchange rate. Canadian exports of natural gas, timber and autos to the US are also very significant for example; but you hardly hear these mentioned in the media. It's because people will more often search out crude, which will indirectly boost interest in their currency article.

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

The bearish sentiment on USD/CAD is basically bullish sentiment on markets. I think what's happened is reality (or worse, pessimistic reality) has come back into focus. Basically, there is a real risk that Canadian markets will come unhinged due to the reliance on US consumption. And we will discover this next quarter when the time lag between US and Canadian real estate fortunes reaches about 1-1.5 years. That's a lot of risk.

The bearish case for USD/CAD is basically Obama. There's a lot of stuff happening near the end of this month, so it could be quite a ride.

^^^ I agree with all of the above. And while I agree that Canadian residential real estate will continue to follow US real estate lower, I think Canadian house prices will drop less for 3 reasons: 1) Canada wasn't as high as the US; 2) less leverage in Canada; 3) a relatively weaker economy in the US (maybe).

Selecting among these currencies is like guessing who may survive a train wreck. The case of the gold bugs is still compelling to me.