Forex Investment and Currency Trading

Canadian Dollar

The CAD has a data-free week (or little more) ahead of it, with no major domestic economic reports due until building permits on July 7th and no major speeches scheduled. Left to its own devices, it remains to be seen whether the CAD can recover some of its recent relative under performance. Analysts remain bullish on the CAD versus the USD from a longer term point of view given Canada’s stronger structural position relative to the US, sounder financial system and lack of credit/quantitative easing policies and feel that global investors who are seeking a safe, hard currency alternative to the USD will look favourably at the recent softening in the CAD as an opportunity to buy.  One thing to note is that the recently CAD-supportive positive correlation with rising crude prices is breaking down. The correlated movement between these two markets has weakened now and with crude slipping sharply lower yesterday, the negative correlation currently suggests that the CAD may be able to ignore commodity prices in the short term at least.

Australian Dollar
There was choppy AUD trading this week, although netting out the moves, not much has materially changed. Month end and quarter end were seen to have driven some flows, but despite a run of very poor data, the AUD held around US$0.80-0.81, as offshore data fared worse!  A plethora of monthly data released this week has been very soft: falling commodity prices, falling private sector credit and building approvals, weak PMI and shrinkage in job vacancies all reveal cracks in the “growth recovery” story. However, as retail sales surged for another month, the optimists (mistakenly) still believe all is well.

Despite what is clearly a print of weak data, the market remains totally unprepared for near-term RBA easing. If the RBA doers in fact hike, the AUD could well commence a serious move lower.

New Zealand Dollar

Again a catalyst for an overdue NZD correction remains elusive. The NZD was completely directionless last week, despite the news that GDP sank (it fell 1.0% in Q1 - joining many OECD counterparts) and the current account deficit remained horribly wide at 8.5% of GDP. The near-term trading range appears tight around the $US0.64-0.65, level and for the first time in weeks, the NZD slightly underperformed the AUD.

The other data flow (into Q2) turned out reasonably positive, with an uptick in building approvals (suggesting a trough), exports and business “own activity” suggesting flat annual GDP growth (instead of prior readings consistent with negative GDP growth). This supports the RBNZ remaining on hold. However, the favourable inflation outlook (Q2 data are due for release on 16 July and likely to confirm inflation heading towards the bottom of the RBNZ 1 to 3% target) and fragile labour market still leaves the door open for further easing.

Looking ahead, the schedule for data and events is very thin, with interest in retail sales and inflation for Q2.