Loonieviews September 3, 2014


USDCAD drifts lower post-BoC statement

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Loonie likes BoC statement
  • USDX warns of shortterm top
  • ECB could surprise EUR bears

By Michael O’Neill

USDCAD dipped but only slightly, following the announcement that the Bank of Canada had left rates unchanged. The tone of the economic portion of the statement was a tad more upbeat than the July statement, noting a surge in Canadian exports in Q2. Weak exports were a major concern for the bank earlier this year, and this was cited as a reason for a possible rate cut. The statement emphasised that the recent pickup in inflation was anticipated by the bank and was only temporary, while patting itself on the back for accurately predicting stronger growth in the second quarter.

USDCAD outlook

Today’s Bank of Canada statement reinforces the likelihood that the 1.0800-1.1000 trading range will remain intact, but will perhaps evolve into a 1.0835-1.1035 range. Canadian dollar negatives include the divergent Canada and US interest rate paths, weak Canadian employment growth and soft commodity prices including oil. The positives include steadily improving domestic and Chinese economic data.

Chart: USDCAD 4-hour with projected trading range

Source: Saxo Bank

ECB meeting eagerly anticipated

EURUSD has failed to overcome support at 1.3105-10 although the sentiment remains bearish. The magnitude of the drop and the risk of disappointment with tomorrow’s European Central Bank (ECB) meeting may have encouraged some position trimming. Mario Draghi’s comments at the Jackson Hole symposium are behind the elevated expectations of additional ECB policy easing. At the same time, one should remember back to this time last year. The FX market was convinced that the Federal Open Market Committee would announce a tapering programme based on the then governor Ben Bernanke’s comments. They were disappointed then and they could be disappointed tomorrow. However, any EURUSD rally is likely to be short-lived as the Eurozone economy is still wallowing in underperformance.

RBA stays neutral but AUDUSD rallies anyway

Aussie traders were hoping for some insight from a speech by Glenn Stevens, the governor of the Reserve Bank of Australia (RBA) earlier today, which they didn’t get but rallied AUDUSD like they did. Actually, the AUDUSD rally probably had more to do with the improvement in the non- manufacturing PMI for China and better-than-expected Australian data then anything Stevens said or didn’t say.

Scotland’s Deputy First Minister Nicola Sturgeon will be buoyed by polls showing 47% support for independence (with 53% for No) but the pound slipped by a cent against the dollar yesterday.
Photo: Getty


Scotland and Carney undermine cable

GBPUSD dipped in part due to the increasing uncertainty surrounding the referendum on independence for Scotland, on September 18. Arguably, Scotland has been clamouring for independence since William Wallace traversed the Trossachs so the risk may be a tad exaggerated. The main issue behind GBPUSD weakness is Mark Carney and his penchant for opening his mouth and changing feet. In one speech, he has a detailed strategy for interest rates. In the next speech he is taking a page from Janet Yellen’s playbook and voicing concern about wage slack masking the unemployment picture. In just over a month, he has managed to erase nearly all of the past seven months’ worth of GBPUSD gains.

USDX warns of pause in US dollar rally

The US dollar index is bullish but is warning that a short-term pause in the rally may be developing as the USDX bumps into the top of the channel, currently at 83.09. The rising channel has been intact since July 7. A retreat below minor support at 82.80 would lead to a retest of support at 82.35 and then the channel bottom at 82.17.

Chart: USDX 4 hour with uptrend channel

Source: Saxo Bank

Putting Putin in for Peace Prize

Vladimir Putin has apparently used his vast influence with the warring sides in Ukraine to concoct a viable peace plan leading the Ukrainian president, Petro Poroshenko to announce a "Permanent Ceasefire" although the word "permanent" has since been deleted.

President Obama, while in Estonia, expressed scepticism about the durability of the ceasefire, and the European Union is still talking about fresh sanctions against Russia. These sanctions would include blocking all investments in Russian oil companies. Sanctioning Russia while it is working on a ceasefire is a somewhat hostile move by the EU and even provocative. Winter is coming. Where will the EU get its gas?

Categories FX, Foreign Exchange, Currency, Canadian Dollar

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