Forex Investment and Currency Trading

The USD remains on the back foot this morning – and perhaps a little more decisively so, with the market finally cracking through USD support points in a number of markets. For USD/CAD, the dip under the 1.1100/50 support zone that has held up the market this week supports view that the USD sell off is perhaps accelerating, rather than abating. This suggests near term risks of a drop to the high 108s/low 109s. Higher oil prices are modestly CAD supportive and while there is a sense that the CAD may be getting ahead of itself in some respects, disenchantment with the USD generally, Canada’s relatively sounder fiscal position and the BoC’s preference for conventional policies are – the drivers of the CAD’s outperformance at the moment; and despite some lousy fundamentals, the same issues may be relevant for the AUD and NZD – the NZD (+2.8%), AUD (+2.1%) and CAD (+1.7% -all versus the USD) are this week’s top currency performers among the majors. Canadian current account data may be a small bump in the road for the CAD today but we think modest rebounds (high 1.10s/low 1.11s) will be sold into and if there is any modest upside surprise, the CAD should push on again quickly. Month-end adds another wrinkle to trading in the short term; rebalancing flows are expected to be generally USD negative though the TSX’s 11.45% mtd gain has lifted speculation that USD/CAD flows may well be positive. That remains to be seen but we remain of the general view here that USD/CAD gains will remain shallow and short lived.