Risk Currencies are finding it a Grind

CAD traders were caught red faced with Septembers trade surplus surprise print (+$1.25b), the first in eight-months. Market consensus called for a deficit of -$560m. This was achieved by a drop in imports and the strongest monthly export sales figure in nearly three years being powered by energy. Digging deeper, six of seven sectors outperformed, with prices for exports rising +3.9%. Volumes also advanced by +0.3%. Not a surprise was the export sector being driven by energy products (petroleum and coal, +11.3%), which also saw a price increase of +8%. As for imports, they declined -0.3%, led by fewer purchases of machinery. The US remains the largest trading partner, climbing +5% to +$28.2b. This release, coupled with a narrowing US trade deficit and S&P clarifying an erroneous message on France’s credit rating, had the bulls buying the loonie and steering it comfortably away from its monthly lows.

The currency’s gains have been a grind throughout the North American trading session. The improvement in risk sentiment appears to have established a dollar high for the short term. There seems to be a medium term bias to wanting to own the currency on dollar rallies. That been said, in this trading environment and a market on holiday mode, the next Euro sensational headline will have most risk trading strategies again tightening the belts.

The tight trading range is been dictated to by sovereign sellers on top and corporate bids below. The weekly flow data this week is showing that the loonie demand has retreated, an indication that the currency valuation may be a tad rich for interested parties at these particular levels. Volatility (price swings) in the currency out right is little changed this week, one week after reaching the lowest level in more than a month (-6bp to +12.84%). The loonie has dropped -4.6% this year and is the worst performer among the G10. The greenback is down -2.5% (1.0180)

The Aussie dollar is not immune from Italy. Its largest trading partner, China, can do very little to protect growth and risk sensitive currencies in this environment. Especially in a market that is concerned with Italy following Greece, Portugal and Ireland down that slippery slope to first-aid.

Last nights data release showed Australia employment rising +10.1k last month and in line with market consensus. The details were constructive with the rise in employment driven by a +20k increase in full-time jobs, while part-time employment fell -9.9k. The unemployment rate was unchanged at +5.2%, below the consensus forecast for a rise to +5.3% while the participation rate was unchanged at +65.6%. Aggregate monthly hours worked increased +10.4m hours to +1.62m. The market does not expect the RBA to enter an aggressive easing cycle, in fact fixed income traders are pricing in a -25bp cut the first quarter of next year.

Commercial bids and a market appetite for gold on dips have slowed down the selling of the currency, despite the daily’s remaining bearish. Technical analysts will indicate that the currency is in fact oversold short term territory. Aussie bulls are relying on the resilient growth from the Chinese economy to support antipodean currencies. However, in this current environment, the market remains a better seller of the currency on relief rallies, expecting to see parity sooner rather than later (1.0150).

Other links:
ECB Blows Smoke for Italy