The Canadian dollar has extended its rally against the USD during the course of last week, with USD/CAD breaking a key support at 1.3850.

The break of this support is important as it brings an end to the 1.3850-1.4250 consolidation range prices were previous trading in since March.

Further downside risks for the CAD is likely to be cushioned with supportive Oil prices.  Western Canadian crude has rebounded sharply to USD 25/barrel suggesting a bottom in oil prices, because a large proportion of CAD GDP is tied to Oil activity, higher crude prices are supportive of the economy and thus currency strength. 

Broad USD weakness contributing to a move lower in USD/CAD. Much of this USD selling pressure has come from looser FED policies, with much more aggressive forward action versus other central banks. When compared to the bank of Canada, the BOC saw its balance sheets expand from CAD 120 to CAD 442 between March – May. The FED however saw its balance sheets expanding by a whopping USD 2.8 Trillion within the same period. This means the FED is printing significantly more dollar bills compared to the likes of the BOC, a greater supply of dollar in the market devalued the USD and makes it weaker, contributing towards lower USD/CAD exchange rates.