Week in FX Americas – Loonies Split Personality

The CAD currently possesses some untamable traits. Just when you think the “big”; dollar has safe haven dominance across the board, long CAD trades are back in vogue despite the negative economic headlines. It is thought that too many short CAD positions were trying to call the shots on Friday early, eventually allowing the USD to back down from its weekly highs.

For a brief period, Canadian tepid economic growth and potential worries about the US sequester dragging on US growth, strengthened demand for safe-haven Canadian government bonds. However, it seems that investors extracted signs of economic resilience in the otherwise lackluster Q4 gross domestic product report and embraced the fact that the data was not any poorer, had the loonie rallying.

The annualized Canadian headline at +0.6% matched consensus expectations, while falling short of the BoC +1% forecast. This latest proof of Canada’s softening economy did report some underline firmness in some of the subcategories, such as business investment and domestic demand. These encouraging signs have taken some of the shine of the dollar, allowing the loonie to seek firmer footing sub–1.03. How long can this continue? Investors have reason to be cautious against optimism, with a –0.2% decline in December suggests that the Canadian economy has its work cutout. USD bids are beginning to accumulate ahead of 1.0250, the last significant resistance point on the way up this week.

 

WEEK AHEAD

* EUR Euro-Zone Producer Price Index
* AUD Reserve Bank of Australia Rate Decision
* EUR Euro-Zone Retail Sales
* AUD Gross Domestic Product
* EUR Euro-Zone Gross Domestic Product s.a.
* CAD Bank of Canada Rate Decision
* JPY Bank of Japan Rate Decision
* GBP Bank of England Rate Decision
* GBP BOE Asset Purchase Target
* EUR European Central Bank Rate Decision
* JPY Gross Domestic Product
* USD Change in Non-farm Payrolls
* CAD Unemployment Rate
* USD Unemployment Rate

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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Dean Popplewell

Dean Popplewell

Vice-President of Currency Analysis and Research at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell
Dean Popplewell

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