The Loonie is flapping its wings.  US political drama, the flock of doves at the Fed and rate hike expectations in Canada have driven USDCAD down to levels last seen in April 2016. USDCAD opened near the high of the overnight session (1.2699) and slid steadily lower until touching 1.2583 in early New York trading.  It has since inched back toward 1.2600.

It is not a Canadian dollar move but a broad US dollar sell-off. Donald Trump’s Republican Party couldn’t secure enough votes amongst themselves to replace Obamacare.  This is the second attempt and second failure which has raised questions about the Administration’s ability to move forward on the rest of their agenda. So much for tax cut stimulus boosting the American economy and the by default, the US dollar.

Asia traders weren’t impressed.

The USDJPY downtrend that began on Friday, was reinforced with the broad US dollar weakness.  USDJPY opened in Asia at 112.67 and that level was never seen again. The US healthcare bill failure dropped USDJPY to 111.99 before a short-lived bounce in Europe.  It is back to 111.81 in New York trading.

AUDUSD jumped to 0.7904 from 0.7787 on the US dollar’s woes.  It got an added boost from hawkish sounding RBA minutes. AUDUSD soared, rising to 0.7941, before pausing.

NZDUSD traders didn’t fare quite as well, initially. Weaker than expected inflation data drove the currency from 0.7328 to 0.7265 in a flash.  When the healthcare bill news popped up, those losses disappeared.  NZDUSD rallied to 0.7359 where it opened in New York.

EURUSD rallied from 1.1475 to 1.1535. EURUSD got another boost in Europe on EURGBP demand after weak UK data.

Sterling joined the US dollar sell-off party in Asia and rose from 1.3050 to 1.3124 with added support from lingering UK rate hike risks. In Europe, weaker than expected inflation data, reduced those risks and GBPUSD dropped to 1.3017.

Rising demand and rising supply managed to keep WTI oil prices in a $45.84-$46.23 range.  Meanwhile, renewed US dollar weakness has lifted gold prices from $1,215.15 on Friday to $1,238.70 overnight.

There isn’t any data of note from the US or Canada leaving traders to focus on US politics and equities.

USDCAD Technical outlook:

USDCAD technicals are bearish.  Today’s break of 1.2635, the 50% Fibonacci retracement level of the 2014-2016 range is a warning signal.  If USDCAD stays below 1.2635 for a week, it projects a deeper drop to 1.2150.  The daily Fibonacci chart is targeting 1.2575 after the break below 1.2978.

In the short term, USDCAD is in a downtrend channel bound by 1.2800 at the top and 1.2575 at the bottom. For today, USDCAD support is at 1.2575 and 1.2540.  Resistance is at 1.2630 and 1.2670

Today’s Range 1.2575-1.2650

Chart: USDCAD 4 hour