Forex Investment and Currency Trading

FX Bottom-Line: CAD’s commodity status is fading as the US credit crisis deepens. In its place, USD is emerging as the main driver of CAD/crosses as CAD’s North American status trumps all other considerations. This is not unchartered territory, but reflects a familiar relationship associated with US recessions. The USD roller-coaster ride is continuing and ‘clever money” is often caught wrong-footed, but as long as the US uncertainties linger CAD/crosses will take their primary direction from broadbased USD changes.
Crude oil rallied toward US$110/bl earlier this week. NOK obliged and followed oil higher to outperform its G10 peers. CAD, however, lingered [...]

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The valuation driven consolidation in USD/CAD from its extremely overvalued high of 1.0728 on August 12 that was confirmed on the break below short-term support at 1.0566 and 1.0496. It ran out of steam at 1.0424. From a medium-term perspective, 1.0464 is the key level. USD/CAD has traded around 1.0464 since August 26. There has been not definite break lower. The inability
to do so suggested that the consolidation phase of the valuation driven sell off was very mature. With USD/CAD having had a bullish breakout above 1.0343 on August 4, the underlying thesis was use the consolidation phase to prepare [...]

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A number of short term drivers that have increased the NZD bearishness. Last week’s GDP data confirmed that the economy shrank in Q1. And this was not a one off. There was widespread weakness across the primary and manufacturing sectors and parts of the services sector, as the initial effects of the drought, the housing market correction, and a major squeeze on household budgets start showing up in the national accounts data. The already high chance of economic recession just took a step higher. Indicators suggest that Q2 will be worse than Q1. That should be good enough reason for [...]

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Despite AUD/USD hitting post float highs in May, the RBA’s net selling of A$ on market was no more than average, and is actually lower than average.
The RBA sold a net A$336mn in May (from selling A$305mn in April).
One of the reasons for the bullish view on AUD is that market suspects the RBA could be hoping a higher AUD will do its work and help it avoid having to hike rate further. Given the stress the household sector is undergoing (high mortgage rates, food and fuel prices), the RBA likely prefers to see the external sector rather than the [...]

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The NZ economy grew by an estimated 3% in the fiscal year ended March quarter 2008 (actual data reported June 27) but finished the fiscal year with a limp.
While the RBNZ left its key OCR at 8.25% in June, the accompanying decision and monetary policy statement (MPS) was much more dovish. As in the recent Financial Stability Report the central bank is worried about the future impact of the falling housing market on spending. It assumes a multi year 22% real depreciation of house prices (about half the real fall post the 1970s oil shock) and on that basis the [...]

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