Forex Investment and Currency Trading

Over the course of the last week, the Bank of Canada has reiterated its concern with the strength of the Canadian dollar, the Department of Finance has published larger and longer-lasting fiscal deficit estimates, and we’ve seen continual federal election chatter in the Canadian media. And yet, USD/CAD has been moving lower, and came within spitting distance of its 4 August lows earlier this morning. Clearly the momentum in USD/CAD is pointing downwards, no matter what is standing in its way.

Looking at the most recent developments, and starting with the Bank of Canada’s statement last week, the language on CAD was not nearly as harsh as it could have been. While the Bank did reiterate its concern over CAD, it didn’t mention the fact that CAD has been much stronger than the 1.15 rate that it had assumed, leading us to believe that it’s not entirely uncomfortable with CAD’s recent strength, as it has come alongside better global growth prospects. With the USD sliding and the DXY index hitting news lows this week, it’s doubtful that the BoC would want to stand in front of that train.

Canada is still in an envious position compared to the other G7 countries, with the debt to GDP ratio (the government defines debt as accumulated deficits) expected to peak at a not so scary 35.5% in fiscal 2010-2011.

For this coming week, the most important events to watch in Canada will be July retail sales next Tuesday, which should show a healthy gain as car sales were up during the month, and another Bank of Canada speech on Wednesday morning.  Traders still think that USD/CAD will hit new lows and reach 1.05 without any interference from the BoC, as long as the move is reasonably gradual. Once USD/CAD slips below the 1.0630 level, the move lower could be reasonably swift, and it may not take any more than the excuse of a better economic report to complete the push lower.