Forex Investment and Currency Trading

CAD continues to drive lower, testing support at 0.9820/25 (May 21st low), after the surprising Current Account Balance release this morning.  Canada continues to befuddle our economists and traders but trend is definitely clear.  The next target level below 0.9820 will be 0.9715, the February 28th low. 

The interesting thing to note is that most of the country’s key economic figures, outside of labor, have all disappointed (building permits, motor sales, manufacturing shipments, retail sales).  It seems like businesses continue to hire despite the fact they are not building or exporting anything besides oil…to add insult to injury, those employed are not spending any money either!  Nevertheless, CAD trades stronger. 

At the end of the day, over the medium term, these should be very good levels to sell CAD and buy USD.  It is hard to argue with forwards even with forward points working against you.  We do feel that we could be in store for a quick reversal, back above the 1.0080/1.0120 zone…the only question is when.  (On the flip side, if you are need to purchase CAD, be sure to use options to provide participation in the reversal).

Canada: Current Account Balance - 1Q: Sharp Increase in C/A Surplus
8:49 am | Thu May 29 2008 
 
Canada: Current Account Balance - 1Q: Sharp Increase in C/A Surplus
 
Actual: +5.6bn mom
Previous: -0.5bn mom
Consensus: +2.9bn
Released: Thursday, May 29, 2008 at 08:30 (Canada)

Sharp Increase in C/A Surplus
Canada’s current account surplus increases sharply on higher commodity prices. First-quarter GDP report due tomorrow.

Current account +C$5.6bn in Q1 vs consensus +$2.9bn.

KEY POINTS:
1. Canada’s current account surplus widened significantly as its goods trade surplus with the rest of the world expanded. The main factor was higher commodity prices, which had a much larger impact on export values (goods exports rose $5.6bn) than import values (up $1.4bn).

2. Foreign FDI into Canada slowed after a raft of acquisitions in the fourth quarter of 2007. However, foreign portfolio investment into Canada picked up to a net inflow of $10 billion after three quarters of net outflows (driven primarily by equity outflows). Meanwhile, Canadian direct investment abroad increased from $16bn to $22.2bn.

3. GDP data will be released tomorrow, and market expects a tepid 1% rate of real GDP growth in the first quarter; consensus forecasts are slightly lower. This is one of the last key releases prior to the Bank of Canada’s rate announcement on June 10, where market expects a 25bp rate cut.

UPCOMING DATA AND EVENTS:
Friday:
Real GDP (Q1), 8:30am. GS: +1.0%, consensus: +0.6% qoq annualized. Q4 +0.8%.
Industrial product prices (Apr), 8:30am. Mar: +1.7%.
Raw materials prices (Apr), 8:30am. Mar: +6.6%.Andrew Tilton