Week in FX Americas – Loonie Finds No Love

If the Canadian Government is onside everything must be just fine with the loonie? Prime Minister Harper said the BoC’s monetary policy is appropriate and that the currency’s depreciation doesn’t reflect weakness in the economy. Governor Poloz and his monetary policy has happened to trigger a -6% decline in the country’s currency against its largest trading partner the US, where 70% of their total exports travel. No one seems worried about the recent movement, apart from the CAD bulls, as long as the currency trades at “appropriate levels given the various economic realities.” Last October the BoC governor happened to remove their hawkish bias, a bias put in place by the previous Governor Carney 12-months prior. This has removed a market license to support the currency that has since printed a four-year low outright earlier this week.

For many analysts, shortening the CAD outright is considered one of the go-to trades for 2014. However, few expected the currency to have weakened so rapidly so early in the New Year. Next week the BoC again could be putting the loonie directly in the speculators crosshairs. The street is anticipating the BoC to signal the need for lower interest rates by using rhetoric rather than action, an indirect approach to boost economic growth by devaluing the currency.

The loonie is not winning the ugly race amongst the commonwealth currency, for now that honor happens to remain with the Aussie dollar (0.9642). The USD/CAD uptrend seems to be taking a small breather because of the good-sized option interest on the topside (1.1000). However, technically through these levels expect further stop losses to be triggered, opening up the market route to test 1.1300 levels sooner rather than later. The market remains a better buyer of USD on any dips, which currently remain few and far between.


* NZD Consumer Prices Index
* EUR German ZEW Survey
* JPY Bank of Japan Monetary Policy Statement
* AUD Consumer Prices Index
* CAD Bank of Canada 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