Loonie's Technical Resilience Amid Commodity Crosscurrents: A Case for Strategic CAD Longs

The Canadian dollar (CAD) has carved a path of resilience in recent weeks, defying headwinds from weak domestic services data and oil price volatility. Despite a minor dip on June 19, the loonie's 0.6% weekly gain underscores its status as a favored asset in risk-on environments—a dynamic now being tested by escalating trade uncertainties. For investors, the CAD's technical underpinnings and commodity-driven tailwinds present a compelling case for selective long positions, provided risks are carefully managed.

Technical Resilience: USD/CAD's Bearish Breakdown

The USD/CAD pair's recent breakdown below multi-year support levels signals a structural shift in the loonie's favor. A close below 1.3500 would confirm a bearish trend continuation, with key resistance now anchored at 1.3721—a level that, if breached to the upside, could trigger profit-taking. reveals a momentum divergence, with RSI hitting four-year lows despite near-term volatility. This suggests the pair could extend its decline toward 1.3300 if the 1.35 handle holds. ScotiaBank's emphasis on buying dips aligns with this technical picture, as markets have consistently absorbed selling pressure below 1.36.

Commodity Linkages: Oil's Drag vs Metals' Lift

While oil prices fell 1% to $66.33/barrel on OPEC+ supply concerns, Canada's broader commodity mix remains a net positive. Copper and aluminum prices—critical to the loonie's valuation—have surged 4.5% and 3.2%, respectively, over the past month. highlight divergent paths, but the CAD's correlation with industrial metals (which account for 60% of Canada's export revenue) offsets oil's near-term weakness. Persistent U.S. inflation (2.4%) vs Canada's 1.7% also supports CAD outperformance, as BoC rate cuts are less likely than Fed easing.

Trade Dynamics: Deadlines and Disputes

The U.S.-Canada trade landscape remains a double-edged sword. A July 21 deadline for a bilateral deal could stabilize CAD sentiment, but unresolved issues like the digital services tax—briefly halting talks—introduce volatility. Historically, trade tensions have weakened the USD via risk aversion, but persistent U.S. tariffs (25% on Canadian goods) could reverse this if unresolved. Investors should monitor the July 9 U.S. tariff threat: a delayed resolution might push USD/CAD back toward 1.3700, our recommended stop-loss threshold.

Monetary Policy Crosscurrents

The BoC's 2.75% rate—steady since 2023—contrasts with the Fed's 4.5% stance, but Canada's lower inflation permits less aggressive tightening. Meanwhile, Mexico's rate cuts (8.0% to 7.5%) highlight North America's divergent paths. A dovish Fed in 2024 could amplify CAD gains, as USD weakness typically flows into commodity-linked currencies. The CAD's 10-year bond yield near 3.36%—its highest since June 2023—adds a yield-support layer, making it attractive for carry trades.

Investment Strategy: Positioning for CAD Outperformance

Core Thesis: Buy CAD/USD or CAD/EM currencies on dips below 1.3500, targeting 1.3300.
Risk Management: Set stops above 1.3721 (psychological resistance) to limit losses if trade talks sour.
Alternatives: Consider long positions in Canadian equity ETFs (e.g., XIU) or oil-linked commodities, hedged against USD volatility.

Final Take

The loonie's near-term trajectory hinges on technical validation and trade resolution. While oil's price swings and U.S.-Canada negotiations pose risks, the CAD's commodity backbone and USD weakness justify a strategic long bias. Investors should treat dips below 1.35 as buying opportunities, with stops anchored at 1.3700—a level that, if broken, could signal a reversal. For now, the loonie's resilience remains intact—trade it with discipline.