Week in FX Americas – The Loonie Wallows In No Man’s Land

The currency that the new governor of the Bank of England is leaving behind, managed to quietly slip to a 10-week low on Friday. It was not even in sympathy to its sister currency’s plight ‘down-under.’ Friday’s reasons had more to do with its domestic CPI print proving that inflation can still surprise on the downside. This seems to be the new global reality – domestic inflations are benign.

However, it’s not governor Carney’s concern anymore. When monsieur Poloz takes the reins he may need to start worrying about the sharp underperformance to the downside of inflation. His first course of action may require him to remove the central banks mild tightening bias.

Raising interest rates is never popular, but keeping rates low for too long builds in persistent problems for the economy. Interest rates in nominal terms are at record low levels and negative in real terms. The symptoms of distortions created by low interest rates could lead to unfunded pensions, excessive household debt, high house prices, and a bias toward high-yielding equities. There is a train of thought that the BoE should start raising interest rates to lessen the build-up of financial imbalances.

The loonie remains at a disadvantage, as abundant liquidity and slowing commodity prices argue for buying emerging market assets with attractive coupons, while selling commodity currencies, mostly on the back of the Chinese demand for commodities continue to decline. After Friday morning’s data, corporate sellers came out in droves around the 1.0300-print. Good buyers do not appear in droves on the 1.02 handle. There is better selling of the CAD below 1.02, closer 10 1.0175.



* RBA Policy Meeting Minutes
* EUR German Producer Prices
* GBP Consumer Price Index
* JPY Bank of Japan Monetary Policy Statement
* JPY Bank of Japan Rate Decision
* GBP Bank of England Minutes
* USD Fed Releases FOMC Minutes
* GBP UK’s Gross Domestic Product
* USD Durable Goods Orders

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