Week in FX Americas – The Loonie Has Lost The Plot

The CAD was on a collision course only minutes after BoC Governor Poloz indicated that policy makers were taking a step back from their hawkish rhetoric that has been in play ever since the BoE’s Carney was at the helm.

The USD is ending the week beating back a wall of loonie buyers. The BoC’s decision to drop its tightening bias earlier in the week has crippled somewhat the CAD outright, and this despite commodity prices getting a leg up on a vulnerable US dollar.

The BoC surprised the market mid-week by dropping the “conditional tightening bias” that had been in-play for nearly 18-months. However, changing its stance and being vocal is not a perquisite for the central bank to be cutting rates any time soon – the bar for lower rates seems to set in stone and would require a lot more warning signals from the Canadian economy for that to occur.

Be forewarned, the negative macro factors are beginning to stack up (Canadian growth issues, commodity prices, China’s hard landing) and will be used to push the loonie lower in the short-term. Any ad-libbing on global growth usually has a direct impact on the commodity growth sensitive currency.

Despite consolidation and appreciation tending to usually be the order of the day – the market is now looking towards further fundamental weakness now that the CAD is closing out the week on its lows outright, extending its recent decline as fears of possible monetary tightening in China put pressure on commodity-linked currencies.

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WEEK AHEAD

* USD Advance Retail Sales
* USD Consumer Confidence
* EUR German Unemployment Change
* USD Consumer Price Index
* EUR German Consumer Price Index
* USD Federal Open Market Committee Rate Decision
* USD Fed Pace of Treasury Purchases
* NZD Reserve Bank of New Zealand Rate Decision
* JPY Bank of Japan Rate Decision
* EUR Euro-Zone Consumer Price Index
* CAD Gross Domestic Product
* CNY Manufacturing PMI
* USD ISM Manufacturing

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.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis 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