Loonie worst performer of 2015 with more pain to come

Today’s FX Comment

Opening FX Rates Canadian Crosses Opening Commodities (USD)
USD/CAD 1.2666 CAD/USD 0.7895 Oil 44.84
EUR/USD 1.1313 EUR/CAD 1.4328 Gold 1261.62
GBP/USD 1.5060 GBP/CAD 1.9070 Silver 16.91
USD/JPY 117.68 CAD/JPY 92.89
AUD/USD 0.7775 AUD/CAD 0.9845
PLN/USD 3.7177 PLN/CAD 2.9355

Loonie worst perfomer of 2015 with more pain to come

USD/CAD Comment

The Canadian dollar is one of the world’s worst performing currencies so far this year, falling faster than most analysts predicted a few weeks ago, thanks to plummeting oil prices and Canada’s weakening economic outlook.

The loonie has fallen below 80 cents US for the first time in nearly six years, and forecasters are calling for a further drop to around 75 cents (U.S.) since the Bank of Canada’s surprise benchmark interest-rate cut last week.

That quarter-point cut to 0.75 per cent — and growing speculation the Bank of Canada could cut rates again in the near future as oil prices keep falling — is putting added pressure on the loonie.

“The environment has turned rapidly against [the Canadian dollar] and we are likely to see ongoing weakness in 2015,” Camilla Sutton, Scotiabank’s chief currency strategist, said in a note released Thursday.

The Canadian dollar has dropped 7% this month and 15% since July of last year. The loonie is tied to the price of oil and will continue to remain volatile until we have some stability in the oil market.

The falling dollar is good news for Canadian exporters and people with U.S. dollar investments, but will likely translate into higher prices for a wide range of imported consumer products such as food, clothing and cars.

Capital Economics economist David Madani is forecasting a “modest bounce back in the price of oil,” and predicts the Canadian dollar will stay close to 80 cents US in 2015. “But with domestic economic conditions expected to worsen relative to an improving U.S. economy, it won’t be long before the Canadian dollar tumbles further,” he said in a note, forecasting a drop to 75 cents (U.S.) in 2016.

That’s consistent with a call made earlier this week from TD Bank, which sees the loonie dropping to 75 cents US by about this time next year, before bouncing back to 85 cents US by the end of 2016.

Economists at CIBC expect the Canadian dollar to slide to 77 cents (U.S.) by this summer and believe the Bank of Canada will cut its benchmark interest rate another 25 basis points given its “evident impatience with respect to oil’s hit to growth.”

Today we get the GDP data from both Canada and the US. Canada is expected to post a result of -0.1% while the US print is expected at 3%.

Short term technicals on the currency pair remain bullish with the pair looking to break the1.27 level and possibly target 1.28.

Today’s expected trading range is 1.2600 – 1.2700

EUR/USD Comment

The EUR/USD was higher in yesterday’s trade after German unemployment printed at 6.5% slightly lower than last month.

Greece, where a radical leftist prime minister took over on Monday, also kept investors nervous, although Greek shares regained some ground after falling 9.2% on Wednesday.

Today’s Eurozone CPI is significant risk that has the potential to move the currency pair violently in either direction. The headline CPI is expected to fall 0.5%y/y while core inflation is expected to remain stable at 0.7%.

Overall the euro is expected to weaken through 2015 given the significant economic, fundamental and political challenges that the region is currently plagued with.

Short term technicals continue to remain bearish with the pair expected to trend lower.

Today’s expected trading range is 1.1250 – 1.1400

GBP/USD Comment

The GBP/USD eased yesterday after nationwide housing prices met expectations and the US dollar remained flat. Sterling fell against the dollar on Thursday as interest rate differentials moved in favour of the greenback after the Federal Reserve gave an upbeat assessment of the US economy.

The gap between rate-sensitive two-year Treasury yields and British gilts widened, reflecting a view that the Bank of England is likely to keep rates lower until well into 2016 and the Fed could become the first major central bank to lift interest rates later this year.

Bank of England chief economist Andrew Haldane on Wednesday reiterated the message that the BoE was in no rush to raise interest rates and that when hikes do come, they will be gradual, perhaps as little as a half percentage point rise each year.

BoE governor Mark Carney also said the path to rate rises would be gradual. In a speech late on Wednesday, Carney urged euro zone to do more, including a fiscal union, to escape its slow-growth debt trap.

Short term technicals are mixed with the pair seemingly stuck in a narrow trading range. A catalyst is required to move the pair out of its current lazy range.

Today’s expected trading range is 1.5000 – 1.5125


Canadian dollar sinks even deeper

The US dollar rose on the Fed outlook amid global easing and is heading for its highest close in more than 10 years amid speculation that Fed is the only developed nation’s central bank able to raise interest rates this year.

The Surging USD continues to eat away the earnings of the companies that depend on foreign sales for a large part of their businesses.

Gold dropped for the fourth straight day losing more than 1% as the US dollar continues to firm.

German inflation fell 0.5% Y/Y in the month of December; euro remains flat against the USD.

Sterling fell against the USD as interest rate differentials moved in favour of the greenback after an upbeat assessment of the US economy.

The current USD/CAD rate is in high 1.25s, EUR/USD rate is in mid-1.13s and GBP/USD rate is in low 1.51s.

Loonie drops below 80 cents…

January 29 2015

Opening FX Rates Canadian Crosses Opening Commodities (USD)
USD/CAD 1.2534 CAD/USD 0.7978 Oil 44.44
EUR/USD 1.1317 EUR/CAD 1.4177 Gold 1272.67
GBP/USD 1.5132 GBP/CAD 1.8969 Silver 17.50
USD/JPY 117.89 CAD/JPY 94.05
AUD/USD 0.7783 AUD/CAD 0.9753
PLN/USD 3.7385 PLN/CAD 2.9819

Loonie drops below 80 cents…

USD/CAD Comment

The Canadian dollar continued its tumble, falling below 80 cents compared to the U.S. dollar for the first time since 2009 after the FOMC announcement yesterday afternoon.

The Federal Reserve took an upbeat view on the U.S. economy and signaled that it remains firmly on track to raise interest rates this year despite an uncertain global outlook. For now the US dollar seems firmly in command and should continue to
remain well-a-bid over the medium term.

The loonie ended the trading day at 1.2530 – that’s down 7 cents in the past month and 15 cents since July.

The loonie, which is getting the label “swoonie” by some in the Canadian media because of its fast decline, has weakened because of several factors. The main factors include low crude oil prices and a strengthening U.S. dollar. The Bank of Canada also recently lowered the benchmark interest rate target from 1 percent to 0.75 percent.

With those factors in place, the Canadian dollar is expected to further weaken. A report by TD Economics released earlier this week is forecasting that the Canadian dollar will drop to 75 cents.

The strength of the Canadian dollar tends to go in cycles, and Canada has had a long stretch with a strong currency. Except for a five-month period during the global financial meltdown in late 2008 and early 2009, the loonie has been above 80 cents since June 2005. Its peak during this run was in November 2007, when the Canadian dollar was $1.07 compared to the
U.S. dollar.

Technicals continue to warn of US dollar upside with the next major levels at 1.26 followed by 1.27.

Today’s expected trading range is 1.2500 – 1.2600

EUR/USD Comment

The EUR/USD eased after the FOMC decision yesterday to close the trading day below the 1.1300 level but well above its recent lows. Trading ranges have been narrow at traders catch their breath after last week’s aggressive ECB policies.

Greece remains in the forefront as the Greeks and the EU try to come up with a way to resolve issues. The new coalition government has opened its doors to re-negotiation of debt talks with international partners. Fundamentals continue to remain to the downside with the euro expected to weaken further in the coming months.

There are no major releases out of the eurozone today. The core risk remains tomorrow’s inflation data. A significant miss to the downside will result in a violent move on the currency.

Short term technicals remain bearish with the pair looking to target the psychological 1.100 level in the medium term.

Today’s expected trading range is 1.1250 – 1.1375

GBP/USD Comment

The pound weakened marginally against the U.S. dollar on Wednesday after the Federal Reserve’s hawkish statement. The currency has been range bound of late with limited news flows out of the UK.

Markets shrugged off data on Tuesday showing that U.K. gross domestic product expanded by 0.5% in the final three months of 2014, below forecasts for growth of 0.6%.

Year-over-year, U.K. economic growth grew 2.7% in the three months ending December, missing expectations for a gain of 2.8%.

A separate report showed that U.K. mortgage approvals dropped to a 20-month low of 35,700 last month from November’s total of 36,700.

Overall, a catalyst is needed to move the currency out of its recent lazy trading range.

Short term technicals are mixed with support located at 1.5060 while resistance is located at 1.5269.

Today’s expected trading range is 1.5050 – 1.5200


The US Fed:  Repeats it can be patient, will monitor internation al developments

The US Fed: Repeats it can be patient, will monitor international developments

  • Inflation has decline and may decline further but should increase over the medium term as the labor market improves and temporary effects from low energy fade
  • Repeats rhetoric on market-based measures of inflation and survey based measures sending opposite signals
  • Labor market slack continues to diminish
  • Risks to labor market and economy remain nearly balanced
  • Timing of rate hikes continues to depend on incoming information
  • Vote was unanimous

There are no projections released with this statement and there is no press conference scheduled.

Will the Fed stop US dollar rally?

Today’s FX Comment
Opening FX Rates Canadian Crosses Opening Commodities (USD)
USD/CAD 1.2452 CAD/USD 0.8031 Oil 45.32
EUR/USD 1.1343 EUR/CAD 1.4123 Gold 1288.30
GBP/USD 1.5192 GBP/CAD 1.8926 Silver 18.03
USD/JPY 117.80 CAD/JPY 94.58
AUD/USD 0.7959 AUD/CAD 0.9905
PLN/USD 3.7338 PLN/CAD 2.9983

Will the Fed stop US dollar rally?

USD/CAD Comment

The U.S. dollar edged lower against its Canadian counterpart on Tuesday, pulling away from a nearly six-year peak as a disappointing report on U.S. durable goods orders dampened demand for the greenback, while markets eyed the Federal Reserve’s upcoming policy statement. Oil and gold prices also registered solid gains helping bolster the Canadian dollar.

Falling oil prices and a surprise interest rate cut by the Bank of Canada have weighed heavily on the currency. The loonie has also lost value amid speculation that the central bank may make another cut to its key overnight rate after surprising the financial community last week when it cut the rate by a quarter-point to 0.75 per cent.

"The market is pricing in a 16 per cent chance of an interest rate cut at the March meeting and a 68 per cent probability of a cut within the next year," observed Camilla Sutton, chief FX strategist, managing director, Scotiabank Global Banking and Markets. "We expect BoC policy to introduce additional volatility into the Canadian dollar."

The plunge in oil prices has weakened the Canadian economy but this likely won’t be reflected in November gross domestic product figures coming out Friday. Statistics Canada is expected to report that GDP rose by 0.1 per cent over the month.

Reflecting that rapid drop in prices, TD Bank on Monday downgraded its economic forecast. The bank now expects the Canadian economy to grow by two per cent this year compared with its expectation in December for growth of 2.3 per cent. TD said it also expects the Bank of Canada to cut its overnight rate by another quarter of a percentage point in March.

All eyes are on the US Fed today on where the bank expected to stick to its pledge to be patient on tightening monetary policy.

Traders will also take in data on U.S. fourth quarter economic growth on Friday. Economists generally expect that U.S. GDP grew at an annualized rate of 3.1 per cent, down from a five per cent pace in the third quarter.

Shor term technicals remain bullish. A sustained break above 1.2500 should open up 1.26/1.27.

Today’s expected trading range is 1.2350 – 1.2550

EUR/USD Comment

The EUR/USD climbed to close yesterday’s trading session in the high 1.137’s ahead of the FOMC decision today.

Comments from the New Greek government and EU members seem to indicate that there is some flexibility between the two to negotiate new terms without Greece leaving the euro. The head of Greece’s far-left Syriza party, Alexis Tsipras, has been sworn in as prime minister and is set to lead an anti-austerity coalition government.

The euro recovered from an 11-year low against the US dollar as investors digested what Syriza’s victory meant for the Eurozone’s future. Europe’s main share markets also rose – after initial falls – on hopes that a compromise over Greece’s bailout terms might be found.

The inflation data for the eurozone out Friday is a fundamentally important drive for the currency pair in the short term. Any deviation from expectations will feed into the currency and generate a substantial reaction. Market analysts continue to expect the euro to trend lower over the coming months.

Short term technicals continue to remain bearish with support located at 1.1000. A break there would accelerate the pair toward the 1.08 level.

Today’s expected trading range is 1.1275 – 1.1425

GBP/USD Comment

The pound gained in Tuesday’s trade against a weak US dollar even after the release of disappointing U.K. economic growth and mortgage approvals.

Year-over-year, U.K. economic growth grew 2.7% in the three months ending December, missing expectations for a gain of 2.8%. The U.K. economy expanded at an annualized rate of 2.6% in the third quarter of 2014.

A separate report showed that U.K. mortgage approvals decreased to a 20-month low of 35,700 last month from November’s total of 36,700. Analysts had expected the number of new mortgages approved to decline to 36,600 in December.

Across the pond U.S. durable goods orders dampened demand for the greenback causing the pound to firm in yesterday’s trade. The near term risk for the GBP is today’s Fed announcement as the remainder of the week is relatively light from the UK.

Short term technicals remain range bound with the pair looking for a catalyst to break in either direction.

Today’s expected trading range is 1.5150 – 1.5350

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US dollar off its recent highs.  Will the Fed spook the market t omorrow?

The USD continues to reign as the currency of choice as the markets continue to favour safe haven buying. The Fed begins its two day meeting with most analysts expecting little to no change in policy stance. The US dollar index is off its recent highs however, the upward momentum remains intact.

The Canadian dollar continues to be weighed down by commodity prices and the surprise BoC rate reduction last week. The 1.25 level is well within sights and a break there could extend to the 1.27 levels and above.

The Euro is up today trading driven by flows and short covering. There has been a retracement back from yesterday’s lows; however, analysts continue to expect the currency to trend lower over the coming months.

The pound is flat as the market digests a weak Q4 GDP. There are no major data releases out of the UK this week which should contain any major moves on the currency.

At the time of writing the USD/CAD is trading in the mid-1.24’s, the EUR/USD is trading in the 1.13’s and the GBP/USD is trading in the high 1.51’s.

Speculation on further BoC rate cuts weigh on the Canadian dollar

January 27 2015

Opening FX Rates Canadian Crosses Opening Commodities (USD)
USD/CAD 1.2476 CAD/USD 0.8015 Oil 45.82
EUR/USD 1.1277 EUR/CAD 1.4069 Gold 1279.90
GBP/USD 1.5087 GBP/CAD 1.8820 Silver 17.84
USD/JPY 117.92 CAD/JPY 94.51
AUD/USD 0.7942 AUD/CAD 0.9904
PLN/USD 3.7444 PLN/CAD 3.0019

Speculation of further BoC rate cuts weigh on the Canadian dollar

USD/CAD Comment

The Canadian dollar continued to test new 5-1/2 lows against the US dollar yesterday, extending last week’s losses after the Bank of Canada shocked markets with a 25 basis point cut to its benchmark interest rate.

The Bank of Canada delivered the wholly unexpected rate cut last Wednesday, its first rate change since September 2010, ending the longest period of unchanged rates in Canada since 1950.

"It’s a continuation of what we’ve seen over the past week or so, of financial markets digesting the news from the Bank of Canada, that they’re much more worried than what analysts were expecting," said Charles St-Arnaud, senior economist and strategist at Nomura Securities in London.

"In general, a very gradually weakening trend … we’ll see over next few weeks and probably even months."

Crude prices turned positive on Monday after the secretary-general of the OPEC producer group said he expected the market to bottom out around current levels, which helped temper some earlier losses.

Because Canada is a major oil exporter, the Canadian dollar has taken a beating alongside crude prices, which have tumbled since June on dwindling demand and a glut in the global stockpile.

One of this week’s main economic events will likely be the U.S. Federal Reserve’s statement after it meets on Tuesday and Wednesday. Most analysts expect the Fed will show little change in policy. The Fed is widely expected to raise rates in mid-2015.

Short term technicals are very bullish with the pair looking to break through the 1.2500 and target the high 1.20’s in short order.

Today’s expected trading range is 1.2420 – 1.2525

EUR/USD Comment

The EUR/USD gained yesterday as traders corrected from last weeks over reaction now that the Greek election is behind and the stimulus program has been announced markets are finding the right point for the currency. Traders are supporting the greenback as the US economy remains moving forward full steam ahead with the FOMC meeting on Wednesday. As most
pre-election polls anticipated, the former Greek opposition party Syriza has swept to victory in the elections in Greece over the weekend.

The results sets the scene for a period of confrontation between the Greek government and the EU, as the prime minister-elect Alexis Tsipras prepares to form a coalition to end austerity and end an era of international pressure to implement painful budget cuts. In his victory rally, Tsipras said that there will not be any catastrophic clashes, however there will also not be continued bowing to all international demands.

In the build-up to the election he also stated that he will be looking for a portion of the Greek debt to be written off, since, as it stands, the country is not on a sustainable path to get itself out of the current slump. As a reaction to the news, the Euro fell to a fresh 11-year low before recovering its losses.

Near term risks for the euro remains the inflation reports expected later this week and the Fed decision out on Wednesday. Overall most analysts continue to expect the euro to trend lower over the coming months.

Short term technicals continue to remain bearish with support located at 1.1000.

Today’s expected trading range is 1.1225 – 1.1325

GBP/USD Comment

The GBP/USD gained yesterday after touching news lows under the 1.50 level. A negative surprise from the Bank of England helped push the British Pound lower for the sixth-consecutive week versus the US Dollar. Extremely stretched price action raises the risk of a short-term bounce, but what could reasonably force the Sterling higher?

The seemingly-unstoppable US Dollar clearly remains in control against major counterparts, and the British Pound is no exception. UK economic event risk will be relatively limited in the week ahead and offers little hope of a news-driven GBP reversal.

Short term technicals are range bound and while direction will be driven by overall market themes.

Today’s expected trading range is 1.5040 – 1.5140


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