Forex Investment and Currency Trading

CAD
The last 24 hours have seen choppy, directionless trading in USD/CAD, as CAD tried to recover from Finance Minister Flaherty’s comments on Tuesday, but didn’t really know which way to go ahead of tomorrow’s dual Canada-US July employment reports. The recent 1.0650/1.0800 range is likely to hold for today.

For tomorrow’s Canadian jobs number, expectations are a little more spread out than usual, as there are significant event risks on both sides of consensus. An upside surprise would likely have a bigger impact on CAD than a downside surprise; a slightly worse number would simply be “status quo” and in line with recent trends, while a better number (seasonal factors and auto sector issues mean that we can’t entirely rule out a positive result) could send USD/CAD to new lows for the year. A decent nonfarm payrolls print tomorrow out of the US would be the icing on the cake for lower USD/CAD, and market likes selling rallies.

Other Majors
Currency markets seemed to be a little bit confused today, and the usual rules of thumb (risk on = strong AUD and NZD; risk off = strong USD and JPY) have broken down. It looks like currency markets may have been focusing on individual economies’ fundamentals for a change, and reacting accordingly.

In the ranking of overnight currency performance, AUD and NZD were on opposite ends of the spectrum instead of moving together like usual. Australia reported much stronger than expected employment figures, driving AUD higher, to be the only currency outperforming the USD overnight. Meanwhile, New Zealand’s unexpected 1 percentage point rise in its unemployment rate drove NZD lower, near the bottom of the major currency pack.

The USD and JPY were also on opposite ends of the pack of majors, breaking the usual rule of thumb. The USD rallied against most of the majors, while the yen weakened after Reuters reported that the Bank of Japan may forecast three years of deflation We’ve been waiting for some time for the major currencies to start distinguishing amongst themselves, based on their fundamentals as opposed to a simple “risk on/risk off” rule. While one night of action isn’t enough to declare a trend, traders expect to see more of that kind of action going forward as the global economy moves out of The Great Recession and towards recovery. The USD’s role as the “go to” currency when things look scary isn’t going to last forever; while the
relationship isn’t as strong as it was in Q1, when equity markets were sinking fast and equity-down days almost always meant USD-up days, it’s still stronger than we think is sustainable.

GBP has been the big under-performer after the Bank of England announced a shocking £50B increase to its asset purchases to £175B, while most analysts were split between expecting an unchanged result and a smaller £25B increase. GBP/USD lost more than a full big figure after the announcement, and EUR/GBP rose as high as 0.8550, back to where it was before this week’s string of strong UK economic data.