- Throughout October USD/CAD was essentially a one-way bet with the pair trading higher all the way from 1.05 levels to 1.30. Two key themes pushed the USD/CAD inexorably higher: rising global risk aversion (and as a consequence, a flight to quality and a bid for the USD) and a continued plunge in commodity prices. Equities have acted as a good proxy for the global risk sentiment theme with the S&P 500 index down 17% in October. Meanwhile, concerns over a
slowing global economy - and likely recession - in 2009 continues to have a material impact on the commodity price outlook. The CRB index fell another 23% in October and carried the CAD along with it. Subsequently, a market that was exceptionally short of CAD (and of carry trades) coupled with a bounce-back in commodity prices and risk appetite has seen USD/CAD snap back below 1.20 through the turn of the month. - Bank of Canada (BoC) participated in the co-ordinated global rate cuts on 8 October, lowering its key rate by 50bp before cutting by a further 25bp at the scheduled rate meeting on 21 October. In its statement from that meeting, the BoC was unabashed in suggesting that more monetary stimulus would likely be needed as the US and global economic outlooks were both poised for a material slowdown. Still not convinced though that the BoC is going to continue
cutting rates into the first-quarter of 2009 even though under the best case scenario, the Canadian economy is likely to just barely skirt a recession. However continue to look for at least one more cut in rates before this year-end, probably by 25bp at its scheduled meeting on 9 December. - Key drivers for CAD, and likely FX markets overall, should continue to be market risk.
Key drivers for USD/CAD - Market Risk
November 19th, 2008 · No Comments
Tags: USDCAD
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