Quarter-end pushes USD repricing

It seems that the USD rally does not fit into the recent trend of dollar strength, and resemble the more traditional “risk-off” dynamic that investors have become accustomed too over the past year. Some will argue that the dollar price action is been driven more so by repricing of monetary policy expectations from the major central Banks “amid relatively firm performances by risky assets”. This week, the fear of a global growth slowdown, as expressed by the PMI’s, is causing some investors to unwind USD-funded long risk positions. Of all the asset classes, it seems that FX is the only one not to have been positioned for a data slowdown. For now, both equities and fixed income have managed to stand their ground. Investors should wait until the month and quarter balancing readjustment has been completed before “betting the farm.”

Below are some other highlights of the week:


  • CAD: Wholesale Trade in Canada plummeted in January, falling -1% to CAD$49.02b (the second decline in three months and the deepest one in a year). Most of the underlying categories were affected as was wholesale volumes (-1%). The market had been expecting a gain of +0.4%.
  • USD: NY sitting Fed member Dudley, dominated the rhetoric front at the beginning of the week. A surprise to a few members of the market was that he made “no” comment on US monetary policy outlook, unlike his cohered from the Chicago Fed, Charles Evans last week. He indicated that rate outlook is tied to Economic performance and remains cautiously optimistic about Europe. Dudley stated that signs that the US economy improving “does not dispel risks that include rising gas prices and a weakened housing market.”
  • USD: Geithner’s early week comments included stating that China still has ways to go on its currency and that the Volckner rule should not hurt liquidity abroad. He also believes that extending maturity on US debt makes sense given the historically low interest rates. While Bernanke, delivering a speech at George Washington Business School said he sees improvement, but that the US economy has a long ways to go and that we should keep lessons from the great depression to evaluate recent Fed actions.
  • USD: Home building fell in February (-1.1% to a seasonally adjusted annual rate of +698k), while permits for new construction reached their highest level in three-years (+717k), showing the uneven nature of the years long recovery in the sector. The market had been expecting Starts to rise by +1.3%.
  • Fed: Bernanke’s testimony on the European debt crisis before the House Committee on Government Oversight and Reform ‘burnt no barns.’ He has no concerns with the ECB as it remains a highly solvent institution.
  • Fed: Bernanke continues to specify that inflation, which has been low and stable, remains a primary commitment.
  • CAD: Canadian composite of leading indicators climbed last month, matching traders’ expectations (+0.6%, m/m), led by financial-market activity. On the disappointing side, January’s estimated +0.7% advance was revised down to a lowly +0.4%.
  • USD: Existing home sales fell by -0.9% to +4.59m in February, below the consensus of +4.62m. However, an upward revision to January’s print of +4.63m to +4.57m offsets some of the February disappointment.
  • CAD: Traders anticipating Canadian retail sales to rebound strongly in January were disappointed, as the overall month to month gain fell well short of anticipation this week. Retail sales rose +0.5% to +C$38.9b, based on a +0.3% increase in volume. However, ex-autos, retail sales fell -0.5%, the first time in nine-months. The market had been anticipating a huge gain for the beginning of the year, +1.8%, with ex-autos at +0.5%.
  • CAD: The number of Canadian filings for initial and renewal UI claims rose +1.6% in Jan. Canadian data this week has pushed the loonie to test new monthly lows.
  • USD: US issued another healthy round of weekly jobless claims data. Claims dropped -5k to +348k, a fresh new four year low. Another indicator that the US labor market is improving was the four-week moving average slipping to +355k. It seems that fewer employers are laying off workers and may actually be picking up the pace of hiring.
  • USD: Fed St. Louis President Bullard has again stated the obvious, saying that “world economies risk elevated inflation that persists for years should developed nations mistime their exits from easy monetary policies.”
  • CAD: Analysts note that Canada’s core inflation growth for last month has a “But” in it and expect that the BoC will look beyond the print. The core inflation jump (+0.4% vs. +0.2%) is due to prices being “oddly cool”. February 2011 price weakness helped cause the inflation to jump the most year/year in three years. The market expects these effects to fade this month, allowing the core to be dragged back to its center point of the BoC range.
  • USD: Sales of new homes in the US surprisingly fell for a second consecutive month in February (+313k or -1.6%). The market had been expecting a climb of +11.2% to +325k. However, on a year/year basis, new home sales were up +11.4% from 2011 with prices stabilizing. New median prices were +$233.7k last month, up +6.2% from 2011.


Europe Week in FX

Asia Week in FX



  • A light week of data starting with German ifo Business climate
  • The USD will have another Bernanke speech to deal with
  • Consumer and Business confidence comes to us from NZD and USD
  • GBP delivers its Current a/c while CAD has GDP
  • Unemployment claims come to us from USD
  • Finally, G7 tentatively meet mid-week in Italy


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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