drivers of price action
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- Nov, 19 Yen Finds Support On Flight To Safety, Ahead Of BoJ Rate Decision
- Nov, 18 Canadian Dollar Range Bound As Oil Remains Capped
- Nov, 17 Pound Strength May Continue If Inflation Data Fuels Interest Rate Expectations
- Nov, 16 Euro Supported As Equity Markets Soar, Is It Sustainable?
- Nov, 13 Yen Becomes Increasingly Vulnerable As Risk Appetite Grows
- Nov, 11 New Zealand Dollar At Risk If Commodities Start To Lose Favor
- Nov, 10 Pound May Plot New Direction If Inflation Report Influences BoE
- Nov, 09 Euro Driven Higher By Soaring Equity Markets
- Nov, 05 Yen Looks To Regain Status As Top Funding Currency From Dollar
- Nov, 04 Australian Dollar Continues To Track Commodities Higher, Ignoring Dovish RBA
- Nov, 03 Euro Following Equity Markets Lower, ECB Rate Decision To Impact Direction
- Nov, 02 Pound Remains Directionless With BoE Meeting Ahead
- Oct, 28 Euro Weakness May Continue, If US GDP Figures Fail To Revive Risk Appetite.
- Oct, 27 Pound’s Direction to Come from BoE Meeting, Credit Report Will Provide Insight
- Oct, 23 New Zealand Dollar Strength May Continue With A Potential RBNZ Rate Hike Looming.
- Oct, 22 Euro and Dow Challenge Psychological Barriers, Will The Rally End?
- Oct, 21 Canadian Dollar Soars On Higher Oil, But Will Crude Run Out Of Steam?
- Oct, 20 Pound Starting to Take Its Cue From Interest Rate Expectations, Will BoE End QE?
- Oct, 16 Will A Pullback In Equities Sink The Euro?
The Canadian dollar continues to see the price of oil dictate direction for the commodity currency as it currently explains 61% of volatility. Crude price have continued to lose ground after failing to hold above the psychological resistance level of $80 and further weakness should continue to provide USD/CAD support.
USD/CAD
The Canadian dollar continues to see the price of oil dictate direction for the commodity currency as it currently explains 61% of volatility. Crude price have continued to lose ground after failing to hold above the psychological resistance level of $80 and further weakness should continue to provide USD/CAD support. Bank of Canada interest rate expectations have started to take a back seat to risk appetite with its correlations fading to 34% from 42% a week ago, as policy makers continue to reaffirm their commitment to keeping rates on hold until mid-2010. However, monetary policy is growing in importance as the economy emerges from its recession as its influence was a mere 16% last month.
BoC Interest Rate Expectations
BoC Governor Carney recommitted to keep the bank’s key interest rate at 0.25% through June 2010, unless inflation threatens their 2% target. Consumer prices falling for a fourth straight month in September by 0.9% significantly increases the chances that policy makers will be able to see their pledge through to fruition. Overnight index swaps are now pricing in 85 bps worth of rate hikes over the next twelve months which has sharply fallen from the 10/14 high of 112. Yield expectations could continue to fall back to the August and September levels near 70 which may weigh the “loonie” further. An unexpected 0.1% decline in GDP for the month of August supports the central bank’s dovish tone and concerns that the local currency’s strength is jeopardizing a recovery.
FOMC Interest Rate Expectations
Fed funds futures are currently pricing in a 3.8% chance of a rate hike by the end of the year which is down from 6.4% a week ago. An unexpected 3.6% drop in new home sales raised concerns that absent government stimulus the recovery in the housing market will falter. It will make it prohibitive for the central bank to raise rates if home values continue to fall. A 1.0% gain in durable goods orders was a sign that growth is starting to gain traction on the back of manufacturing activity which could lead to a upside surprise in the upcoming U.S. third quarter GDP figures. Early forecasts are for a 3.2% surge in growth which could accelerate the timetable for rate hikes from the Fed.
Oil
Crude oil prices have started to trend lower after reaching above $80 bbl for the first time in over a year. The psychological level forced market participants to examine underling supply and demand factors which are currently not justifying the lofty valuation. The EIA October report showed an increase in U.S. stockpiles. However, that didn’t deter oil producers from threatening to increase production if the price reaches above $100. They are concerned that it would jeopardize the recovery and drag demand lower over the long-term. Therefore, we could see upside potential in “black gold” and the Canadian dollar limited as the threat of increased supply looms.
To discuss this report or be added to the email list contact John Rivera, Currency Analyst: jrivera@fxcm.com
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