U.S. Economy Recovery, Crude Oil Push Canadian Dollar Up

The loonie continued its rally after a day of losses as the main trading partner of Canada, the United States, is showing signs of an economic revival.

The Canadian currency has been benefiting from several international factors that are helping it to build the strongest bullish pattern in decades against the main currencies. Canada is one of the main global oil exporters, and since the demand for oil has rebounded in April, the loonie is rocketing against currencies like the greenback and the euro, helped also by the stocks rally, which add attractiveness to the Canadian dollar. After signs of economic recovery in Asia, now speculations about United States interest rate policy, are fueling demand for more risk in equities market, creating a perfect scenario for the loonie to grow stronger.

According to specialists, the current scenario for the loonie might be the most favorable in years, firstly the growing demand for oil, and now, being considered as a satellite for the U.S. economy, it is extremely likely that the loonie will remain stronger if its main trade partner finds a quick way out of recession, and signs that an eventual interest rate raise from the Federal Reserve are already having a positive impact for the Canadian currency.

Yen Continues Fall as Demand For Yield Rises

The Japanese currency had a day of losses against major currencies and higher-yielding assets as the global slump eases, improving investor’s confidence to take riskier positions.

The yen has been suffering multiple sessions of losses since the global recession gave its first signs of ending in the beginning of April, and being regarded by traders as a safe refuge for times of uncertainty and crisis, the Japanese currency lost most of the gains it posted during the worst moments of the crisis, in the last semester of the past year. The pound climbed significantly against the yen as the political crisis in the United Kingdom seems rather controlled. Australia’s dollar climbed versus the yen as an industry report showed an increase in the consumer confidence.

Currency specialists affirm that refuge currencies like the Japanese and the North American may enter an important downtrend, as risk aversion is declining, favoring emergent market currencies like the South Korean won, and commodity-linked currencies like the Australian. It is very likely that a weaken yen will follow for the next months, according to specialists, even if the Japanese economy shows relevant signs of recovery, it won’t probably be able to sustain the yen at high levels, since the outflow of investors towards higher-yielding positions abroad will tend to be much larger.

Dollar Climbs Before G-8 Meeting

After several days of losses, the greenback rebounded, ending the week with a rather neutral performance before a G-8 meeting, where Timothy Geithner may state in favor of a strong U.S. dollar.

The U. S. dollar pared its weekly losses after a Wall Street journal report affirming that the U.S. government will continue its policy to avoid bond purchases, resisting the pressure in order to control the supply of dollars. Another factor favoring the greenback is the incoming G-8 finance ministers meeting, in which speculations lead to believe that Treasury Secretary Timothy Geithner may suggest that a strong dollar is likely to be positive for a healthy world economic scenario. Comments in European financial organizations about the problems of a strong euro to exporters also helped the dollar to pair its weekly losses.

Analysts evaluate the speculations towards the G-8 meeting as a consequence of fundamental and technical factors moving the euro-dollar currency pair, as the market sentiment is not willing to push the euro to higher levels. A part from the problematic scenario the euro brings to the European agonizing exporting market, other factors such as the obscure future of the U.S. dollar as the main world currency make it hard to define in which direction the U.S. will point towards the next months.

South African Rand Post Gains as Emergent Markets Attractiveness Rise

The South African rand had a third consecutive day of positive performances as the global economic conditions are evidently improving, adding attractiveness to emergent market currencies.

The rand is one of the most volatile and influenced by the international world economic scenario among the most traded currencies, and a numbers of factors is helping the South African to climb since this April. Being one of the most liquid currencies available for trading, the South African rand is currently highly attractive, since interest rates in developed nations are rather low, and the economic recovery as its being perceived by traders decreased risk aversion in financial markets, adding to the already interesting profile of the rand. The current spiking oil price and this week’s U.S. reports added confidence to purchase currencies like the Brazilian Real and the South African rand, thanks to their high-yielding profile.

Analysts refer to the South African rand as a currency which is highly subjected to the international situation of the world economy. The richest African nation is a commodity exporter, without a high political influence internationally, being the domestic country’s conditions not so influential as the conditions in the United States for example. It is likely that the South African rand will remain strong as long as the investors continue their confident bullish pattern of asset purchasing.

USD/ZAR traded at 7.9808 as of 4:10 p.m. GMT this Thursday rising from a previous price of 8.1085. The rand already gained 19 percent against the dollar since the beggining of the year.

Canadian Dollar Falls as Crude Oil Price Declines

The loonie posted the sharpest fall in 4 days against all major currencies, interrupting a bullish trend as the price of crude oil stopped its rally, damping demand for the Canadian currency high-yielding profile.

The Canadian dollar had a day of negative performance after Bank of Canada Governor Mark Carney stated that a strong loonie may affect the Canadian economic, as exporters would lose competitiveness having less significant profit margins. The Bank of Canada may take measures to stop the national currency rally which has started since the demand for commodities improved in April, Carney also eased the expectations for a quick world economic recovery, in an attempt to control investors’ bullish sentiment towards the Canadian dollar. The loonie, among the main six traded currencies, posted the highest gains related to the commodities and stocks rally that were triggered by signs of an economic recovery coming firstly in Asia, followed by emergent markets and Europe.

It is natural that the Canadian dollar is losing strength, according to economists, the rally it witnessed was too sharp, and after Carney’s declarations together with a correction movement in the oil price, the loonie was totally unable to keep its bullish pattern. Even thought analysts are uncertain about Canada’s dollar future, it is well agreed that some factors will stop or at least ease its current strength.

USD/CAD closed the session at 1.1181 from Thursday’s rate of 1.1015, ending this week with a virtually neutral performance.

If you want to comment on the Canadian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

FOREXYARD News Center

Dollar Up as Russia Sees No Other Alternative to the U.S. Currency

Monday, 15 Jun 2009

The EUR came under selling pressure against the greenback on Monday after the UK Daily Telegraph reported on its website that Germany's top industrial group has warned that Germany's credit crunch is deepening. The dollar also drew some support after Russia's Finance Minister said the nation has full confidence in the U.S. currency. His remarks came ahead of the first summit of leaders of Russia, China, India and Brazil on Tuesday, at which the leaders are expected to discuss issues including foreign reserve diversification.

Asian markets rise on U.S. consumer Confidence; Euro and Pound hold at high levels

FXstreet.com (Barcelona) - Asian markets are going through gains on Wednesday buoyed by upbeat U.S. Consumer confidence figures and the improvement on Japanese merchandise Trade Data, which has diminished the impact of North Korean missile test. On the currency side, Euro and Pound remain floating at high levels.Japanese Nikkei Index adds 1.5%, as buy orders increased after Japanese trade figures were released. Hong Kong Hang Seng Index soared 4%. South Korean Kospi Index edges down 0.2% weighed by nuclear test by their northern neighbors.Investor's optimism increased considerably after U.S. consumer's confidence rose in May to itts highest level since September, showing that Americans start to feel more confident about the outlook of economy. Furthermore, Japanese exports rose 39.1% year on year in April, against market expectations of a 41.9% decline.Euro and Pound, consolidating at mid-term highsEUR/USD has remained moving in a range from 1.3950 to 1.400 after having recovered on yesterday's U.S. session from 1.3855 intra-day low. The Euro is trading at 5-month high after last week's rally from 1.3420.GBP/USD rose during Asian session to a fresh 6-month high at 1.5980. The Pound has been rallying continuously for the last month, and from 1.4397 low on April 22, the Sterling has risen to levels right below 1.6000.USD/JPY has finally broken above resistance area at 95.10/30 andfd the paitr trades at intra-week high at levels around 95.40 at the time of writing.

GBP/USD gains fresh high

FXstreet.com (Buenos Aires) – GBP/USD, fresh high for the pair in the first hours of Asia, corrective movements seem quite limited in the pair that looks decide to regain the 1.60, thus bigger time frames indicators are presenting divergences.“1.6000 first resistance above actual high, is followed by 1.6040 zone, where we could see the 38.2% retracement of the last monthly free fall from 2.0158 to 1.3502,” said Valeria Bednarik, collaborator at FXstreet.com. Level should offer some rebound at least as a first attempt. Despite divergences, downside correction don’t seem likely at this time. details at this site FXstreet.com

EUR/USD Daily Commentary for 5.6.09

The EUR/USD’s rally topped out yesterday as we expected, with the S&P futures hesitating at 900 while investors await Thursday’s flood of stress test news and economic data. Yesterday’s decline came on minimal volume, showing there is presently insufficient conviction behind the pullback to send the currency pair tumbling. The EUR/USD is stabilizing above Monday’s lows, and could bounce back a bit and trade sideway’s between now and the ECB’s meeting on Thursday. We maintain our bullish outlook on the EUR/USD since no key fundamentals were broken and the momentum remains to the upside with the currency pair trading comfortably above our uptrend lines.

Crude Daily Commentary for 5.6.09

Crude futures continued their consolidation yesterday on marginal volume. However, yesterday’s volume was substantially higher than Monday’s meaning we could see large activity and volatility today. The futures are attempting to position themselves for a rally as they realize April highs suddenly aren’t so far away. If the ADP Non-Farm Employment Change and crude inventories each beat analyst expectations, crude futures could push nicely above May highs towards our 3rd tier uptrend line.

GBP USD Technical Forex Analysis for Forex Traders

GBP/USD was trading in the range of 1.5150-1.4980 area early in this week .It is expected to make highly volatile moves today during the BOE and ECB interest rate announcement time and also during ECB press conference time.

GBP/USD is expected to break the initial high (1.5156) and low (1.5101) set for the day during European and US sessions. A low in the range of 1.4850-1.4900 could be formed during European session and a high of 1.5200-1.5270 could be formed during US session before tomorrow another big event NFP data release.

Gold Daily Commentary for 5.7.09

Gold has surged higher in reaction to the surprise addition of funds to the BOE’s quantitative easing operation. In addition to the BOE’s decision, the ECB has announced the implementation of alternative liquidity measures of its own. The ramp up in liquidity around the globe is creating fear of future inflation, which in turn is boosting the price of gold.

GBP/USD Daily Commentary for 5.7.09

The Pound is experienced relative weakness across the board after the BOE announced it will add $50 billion to its present quantitative easing operation to make a grand total of $125 billion. While analysts expected the BOE to keep its benchmark rate unchanged at .50%, the additional funds for quantitative easing caught investors a bit off-guard. Boosting quantitative easing could indicate that deflationary pressures are stronger than expected, meaning the British economy is still facing some unforeseen difficulties. The Cable pulled back from its rally on strong volume in response to the news.

India’s Forex Reserves Declined By $1.39 Bn

The figures disclosed by the weekly statistical supplement released by the Central Bank (RBI) showed that India’s foreign exchange reserves for the week ended May 01 has declined by $1.39 billion to $251.702 billion.

It should be noted that the reserves came up by $631 million to $253.091 billion during the week ended April 24.

The reports said that the recent fall in foreign exchange reserves was mainly due to a revaluation of reserves and a reduction in price of gold assets held by RBI.

Dollar Falls to One-Month Low as Jobs Data Pare Safety Demand

May 8 (Bloomberg) -- The dollar declined to a one-month low against the euro as a government report showed U.S. employers cut fewer jobs last month than economists forecast, reducing demand for the safety of the greenback.

Canada’s currency advanced to the highest versus the greenback since November on the nation’s unexpected addition of jobs in April. The yen slid versus all but two of the 16 most actively traded currencies tracked by Bloomberg and touched a seven-month low against Australia’s dollar this week as evidence the recession is easing spurred demand for higher yields.

“The prevailing flow now is negative for the dollar, negative for the yen, positive for the commodity-linked currencies and higher yielders,” said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York. “Right now the report is given a positive spin by the market. The market is grabbing on the green-shoot rally.”

The dollar lost 0.6 percent to $1.3473 versus the euro at 10:22 a.m. in New York, from $1.3390 yesterday. It touched $1.3516, the weakest level since April 6. The U.S. currency traded at 99.14 yen, compared with 99.12. The euro increased 0.7 percent to 133.64 yen, from 132.71.

The euro-dollar exchange rate rose today above its 200-day moving average for the first time since December.

Brazil’s real advanced as much as 1.6 percent to 2.0814 per dollar and the South Korean gained 1.5 percent to 1,245.50, the strongest levels since October, as signs the global slump may be ending encouraged investors to purchase emerging-market assets.

Dollar Index

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, fell 0.7 percent this week to 83.390.

U.S. companies eliminated 539,000 jobs in April after a decrease of 699,000 in the previous month, the Labor Department reported today in Washington. The median forecast of 70 economists surveyed by Bloomberg was for a drop of 600,000. The unemployment rate increased to 8.9 percent.

“Things are improving a little bit faster than people were expecting,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. “People have been so bearish on the euro in general. Indeed, what we’re seeing is euro-dollar breaking higher, and our recommendation is to buy the euro.” The euro may rise to $1.40 in two weeks, he said.

The dollar was headed for a third weekly decline versus the euro, weakening 1.6 percent in the longest losing streak this year. Against the yen, the dollar was little changed this week, while the euro rose 1.7 percent.

Hiring in Canada

The Canadian dollar increased as much as 1.1 percent to C$1.1572, the strongest level since Nov. 5, on the Canadian labor report. The currency was up 2.3 percent this week.

Employers in Canada added a net 35,900 workers in April after a reduction of 61,300 in the previous month, Statistics Canada said today in Ottawa. The median forecast of 24 economists surveyed by Bloomberg was for a drop of 50,000.

The yen dropped 4.3 percent to 59.08 versus the New Zealand dollar and 3.8 percent to 75.22 against the Australian dollar this week as a more optimistic global economic outlook prompted investors to get funds in a country with low borrowing costs and buy assets where returns are higher. The Bank of Japan’s target lending rate of 0.1 percent compares with 3 percent in Australia and 2.5 percent in New Zealand.

Japan’s currency touched 75.75 versus the Aussie yesterday, the weakest level since Oct. 7, and reached 59.51 against the kiwi, the weakest since April 6.

Yen and Toyota

The yen dropped 9 percent against the dollar this year after touching 87.13 in January, the strongest since 1995. Toyota Motor Corp., the world’s largest automaker, forecast today a second consecutive annual loss as the global recession curbed demand for new cars and the yen eroded the value of dwindling overseas sales.

The euro gained versus the dollar this week on speculation the European Central Bank’s plan to buy 60 billion euros ($80.5 billion) in covered bonds isn’t aggressive enough to debase the currency. President Jean-Claude Trichet told reporters yesterday in Frankfurt the purchase of debt is a “credit easing.”

Covered bonds, known as Pfandbriefe in Germany, are secured by property loans or lending to public-sector institutions and differ from mortgage-backed securities because they’re also supported by a borrower’s pledge to pay. They have traditionally been considered among the safest bonds available, allowing lenders to pay less interest.

Canadian Dollar Could See Breakouts on Upcoming Canadian Employment Figures

The Canadian dollar held up rather well on Wednesday, as USD/CAD continues consolidating within a large triangle formation and above key trendline support near 1.2300. A break higher or lower could be in the cards in the near-term, though, as Canadian economic data will be released on Thursday. At 7:00 ET, reports are forecasted to show that the Canadian net employment change fell by 50,000 during March, marking the fifth straight month of job losses. Furthermore, the unemployment rate is anticipated to have risen to match January 2002 high of 8.8 percent from 7.7 percent. Since the employment change tends to be a very volatile release, this should have the greater impact on the Canadian dollar, with a sharper than expected drop likely to push USD/CAD higher, while an unexpected positive result could weigh the pair below 1.2300.

Euro Slips Further as Ireland’s Credit Downgrade by Fitch Adds to ECB Rate Cut Risks

The euro remained under pressure versus most of the majors yet again as evidence continues to point to another rate cut by the European Central Bank (ECB) and a move toward quantitative easing. Yesterday we saw that the final reading of Q4 GDP was unexpectedly revised to a new record low of -1.6 percent from -1.5 percent, due primarily to downward revisions to gross fixed capital formation (capital goods investment) to -4.0 percent from -2.7 percent. We also saw, ECB Governing Council member George Provopoulos say during an interview that the bank’s benchmark rate could be cut by at least another 25 basis points, as he did not “see 1 percent as a threshold,” and that he would “not exclude that the ECB could go down further from this level if the economic environment deteriorates further.” Then, today, Fitch announced that they had downgraded Ireland’s sovereign credit rating to AA+ from AAA, and issued a negative outlook. While S&P already did the same on March 30, the news only highlights the extent of the economic woes for the Euro-zone. All told, Credit Suisse overnight index swaps are now pricing in a 36 percent chance of a 25 basis point cut to 1.00 percent during the ECB’s next meeting, up from 22.5 percent on Tuesday, but there is plenty of time for market expectations to shift ahead of that May 7 meeting.

British Pound Lags Ahead of BOE Rate Decision on Thursday - What to Watch For

The British pound slumped versus most of its major counterparts, despite the fact that for the first time since the summer of 2008, the Bank of England is expected to leave rates unchanged on Thursday. Indeed, both Credit Suisse overnight index swaps and a Bloomberg News poll of economists reflect forecasts that the BOE will leave the Bank Rate at an all-time low of 0.50 percent at 7:00 ET on Thursday. A look at their March 5 policy statement shows that the BOE’s Monetary Policy Committee (MPC) expects both growth and inflation to fall lower in coming months and also announced a new 75 billion pound asset purchase program, which included the buying of medium and long-term gilts. Ultimately, how the British pound responds will likely depend on two factors: whether or not the BOE asserts that they want to avoid cutting the Bank Rate to zero, and whether or not they indicate that they want to expand their quantitative easing (QE) efforts. Signs that the BOE is open to reducing rates further or signs that they will increase their gilt purchases could weigh heavily on the British pound, especially against the euro, while the opposite (steady rates, no QE expansion) could provide a boost to the UK’s currency and lead EUR/GBP back below 0.9000.

US Dollar, Japanese Yen Gain as FOMC Minutes Reflect Dreary GDP, Unemployment Outlooks

The US dollar and Japanese yen were amongst the stronger currencies on Wednesday, though we’ve seen little in the way of “breakouts”, as the release of the Federal Open Market Committee’s (FOMC) meeting minutes from March wasn’t exactly groundbreaking since there was little in the way of new details revealed. During March, the FOMC left the fed funds target range at 0.0 percent - 0.25 percent but the big surprise was that they officially announced quantitative easing efforts. The only noteworthy part of the minutes was that the FOMC staff projections for the second half of 2009 and 2010 were downgraded from the FOMC’s long-run projections for growth, unemployment, and inflation in January. While the exact revisions were not published, the minutes did say that GDP was expected to “flatten out gradually over the second half of this year and then to expand slowly next year,” and that this “weaker trajectory of real output resulted in the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year.” All told, this suggests that Q3 and Q4 GDP results aren’t likely to show any sort of recovery, while the unemployment rate could breach the upper range of the FOMC’s projections of 9.2 percent, and perhaps reach double-digits.

ECB Disappointed The Market Again By Adopting Just A 25 bps Cut In April

To our, as well as the market's, disappointment, the ECB only reduced its policy rates by 25 bps to 1.25%, less than consensus forecast of a 50 bps cut. The deposit rate was also 25 bps lower, maintaining the corridor at 100 bps. At the same time, no non-standard measures were announced. We believe this was because the policymakers remained indecisive on what additional measures to be implemented and many of them still felt reluctant to put forward QE.

Although the ECB has slashed its main refinancing rate 300 bps to the current level at 1.25%, the lowest since 1999, since October 2008, it's monetary easing is still lagging its major counterparts, including the Fed, BOE, SNB and BOJ, whose interest rates have reached almost zero.

The ECB President Trichet stated that another cut is possible in May when it may also decide on any new non-standard measures. However, he did not give further details on the options, except for ruling out using exchange rate at an unconventional tool.

Concerning economic outlook, Trichet mentioned at the press conference that economic activities has weakened and is likely to remain very subdued for the rest of the year in the Eurozone. However, gradual recovery is expected in 2010. Despite further easing in inflation, the ECB's ‘inflation expectations over the medium to longer term, at levels below but close to 2%, remain firmly anchored in line'.

We believe at the meeting next month, the central bank will reduce interest rate by another 25 bps, thereby making the policy rate to 1% and narrowing the corridor to 75 bps (as it seems unlikely that the central bank will allow the deposit rate to reach 0%). Moreover, some non-standard measures will be announced and we expect it will be extension of the liquidity provision to banks to 12 months from the current 6 month as well as purchase of private securities. Although buying of sovereign securities is an attractive option, it's not likely for the ECB to do it at the moment.