Greenback May Lose 14% Against Loonie: Technical Analysis

By Chris Fournier

April 29 (Bloomberg) -- The U.S. dollar may depreciate as much as 14 percent against the Canadian currency by November if it breaks through a key technical level amid “steady selling pressure,” according to TD Securities Inc.

Canada’s currency, known as the loonie, is headed for its fifth weekly gain against the greenback, the longest winning streak since November 2007. Speculation that the worst of the global economic crisis may be over is prompting investors to venture out of safe havens and into higher-yielding assets, such as stocks and commodity-linked currencies.

If the U.S. dollar breaks below C$1.1764, “the downside opens up hugely over the next few months” to the upper C$1.04 area, Shaun Osborne, chief currency strategist in Toronto at TD, wrote in a note to clients today. That would be a drop of about 14 percent from yesterday’s close. He recommends selling the U.S. dollar on rallies.

The loonie strengthened 1.5 percent to C$1.2019 against the U.S. dollar at 1:58 p.m. in Toronto, from C$1.2196 yesterday. One Canadian dollar buys 83.20 U.S. cents.

The drop to the upper C$1.04 area is the “maximum technical implication of a break under C$1.1764” rather than a formal forecast and could occur in the next six to nine months, Osborne wrote in a separate e-mail.

Gains in the U.S. dollar have been met with “significant selling pressure” in four of the past five weeks, giving the market a “top-heavy look,” and patterns in the monthly chart indicate the greenback may be ready to reverse its upward trend against the Canadian dollar, Osborne wrote.

Loonie’s Parity

Canada’s dollar reached parity with its U.S. counterpart for the first time in three decades in September 2007 following a 60 percent climb in the preceding five years on the back of rising commodity prices. The loonie lost a record 18 percent last year as demand for raw materials, the source of more than half of the nation’s export revenue, evaporated.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. TD Securities is a unit of Canada’s second-largest bank.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net