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 [...]

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Commodity prices have fallen further - the Dow Jones AIG commodity price index is down 45% from its peak in July. Market continues to expect commodity prices to struggle to recover before the second half of 2009 due to continued deleveraging, weak demand growth, and USD strength. However, much of the downside is now already in the price, and that supply cuts are beginning to have an impact, even where investor sentiment is poor.
Prices are approaching or below the marginal cost of production in some cases, including (to varying degrees) palm oil, soybeans, aluminium, zinc, and crude oil. The notable exception [...]

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So where are the positives for the commodity currencies amidst the cyclical slowdown? May of the medium-term themes in the global economy remain constructive. The powerful growth in China, India and the rest of the Emerging Markets is relatively commodity intensive (compared to that in the developed economies). It requires more “stuff”. To the extent that the outlook for the EM economies remains favourable medium term – particularly in the context of Asia – any set back in commodity prices and currencies may eventually be reversed. Indeed, even the near-term outlook for commodities is not uniformly bearish for commodities. In [...]

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The cyclical downturn in the global economy and the associated slide in commodity prices have triggered a powerful retreat in the so-called “commodity currencies” such as the Australian (AUD), New Zealand (NZD) and Canadian dollars (CAD). Whilst the set-back for these currencies has been abrupt, many remain significantly overvalued on standard Purchasing Power Parity (PPP) and Real Effective Exchange Rate (REER) methodology. The OECD has PPP-based “fair value” as of the end of 2007 for AUS-USD, NZD-USD and USD-CAD at 0.70, 0.65 and 1.22 respectively, suggesting these currencies have some ways to go before stabilizing. AUD-USD is now –14% from [...]

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