Forex Investment and Currency Trading

The CAD remains very volatile; late day gains yesterday have been erased overnight despite some CAD-supportive M&A news – Harvest Energy Trust purchased by Korea National Oil Corp for just over CAD4bn, China Minmetals, the state metals trader, noting at a conference that it was looking to buy gold mine operations in Australia and Canada – and positive data from China. China’s GDP rose 8.9% in real terms in the Q3 year, in line with expectations and underlining the rapid rebound in the economy so far this year; government lending is providing massive support for the economy but positive news in China should reflect well on large commodity exporters such as Canada and Australia. With Tuesday’s BoC’s remarks on the CAD still ringing in the market’s ears, the CAD is liable to trade defensively ahead of the MPR today. Considering the various speaking engagements for Governor Carney over the course of the next few days (speech Monday and parliamentary testimony Tuesday and Wednesday), there is plenty of scope for more verbal intervention – though there is also the risk of diminishing returns. The markets are fully aware of the government and BoC concern about the CAD but also fully aware that action to try and counter this strength is a very low probability at the moment. CAD is expected to remain something of an underperformer in the short term and on the crosses in particular perhaps; USD remains at risk of further broad losses in the short and medium term and that riskier assets remain attractive for investors who – broadly speaking – likely remain somewhat underweight risk. The market will encounter strong resistance to USD gains now in the upper 1.05/low 1.06 zone.

Equities and commodity prices are lower and the USD is modestly stronger overall, suggesting more risk aversion than anything else despite positive news on China’s economy earlier today. Late day weakness in US equities yesterday continues to spill over into the current session and speculation that the Galleon hedge fund wind up may result in some liquidation of equity and currency positions may also be clouding the short term outlook. Still the USD remains vulnerable to further weakness overall and EUR losses are expected to remain limited from here, however. News reports overnight highlighted the fact that ratings agencies are
sensitive to the implications of the rising US debt burden to the US’s Aaa rating (it is “not guaranteed”, according to the lead US analysts for Moody’s). Meanwhile, euro zone current account data showed a renewed rise in portfolio inflows in the latest month, supporting the EUR’s current valuation at least, even if
the overall pace of inflows appears to be slowing considerably from earlier in the year.