Week in FX Americas – Loonie Looking For Excuse To Retreat

The loonie was able to print fresh highs this week ($1.0842), mostly supported by the uptick in commodity prices, specifically crude on supply concerns from any geo-political fallout in the Middle East. Also aiding the CAD was the weakening EUR on the crosses.

On Thursday, Governor Poloz commenting on the semi-annual Financial System Review assessed risks roughly the same for Canada. Despite China’s shadow banking issues raising risks for trade, they seem to be offset by lower Euro-zone risks. He acknowledged the downside risks to inflation and commented on the continued risks in the Canadian housing market. To many, there is a concern that Canada’s low rate environment has “become a curse” to the housing market. Even a small change higher in Canadian o/n rates could have a massive impact or drag on Canada’s economic performance.

Friday’s Canadian manufacturing release was stronger that the April headline would suggest. Sales value dropped -0.1% vs. the expected +0.5% gain. However, sales were up in 2/3 of the 21 sub-categories (+0.4%), which would suggest that the headline drop was driven by a drop in ‘prices’. April’s producer price report reveals that prices fell for primary metals, chemical and energy products.

Dealers have seen some “real money” pulling out of USD/CAD over the past 24-hrs, saying that only “must do stuff” seems to be going through. The reason, a possible concern over CAD valuation. There were rumors that the Province of Ontario would be downgraded on the back of the majority Liberal win in Thursday’s provincial election. There is speculation that the Liberals will be in power to launch an aggressive spending plan. Assumptions like this will push the USD higher.

The loonie has been climbing outright since March, moving from $1.13 to just above $1.08. Currently EUR/CAD offers parked near €1.4730-50 and dollar offers $1.09 will provide some resistance.

On tap for next week:

Central Bank rhetoric again takes center stage, followed closely by UK and Canadian inflation reports. The start of the week we get the release of the Aussie Monetary Policy meeting minutes. In hot pursuit on Wednesday, the FOMC delivers its economic projections and statement followed by a press conference. The SNB fixes its Libor rate on Thursday – no change expected. Ending the week from a central banks perspective will be the BoJ’s Governor Kuroda speaking Friday morning.

WEEK AHEAD

* EUR Euro-Zone Consumer Price Index
* USD Federal Reserve FOMC Meeting
* GBP Core Consumer Price Index
* USD Consumer Price Index
* GBP Bank of England Minutes
* USD Fed QE3 Pace
* NZD Gross Domestic Product
* CHF Swiss National Bank Rate Decision
* CAD Consumer Price Index

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