USD/CAD finally drove through its November 2008 lows of 1.1465/75 earlier this morning. So far this week, all the stars seem to be lining up in favour of the Canadian dollar, with crude oil breaking through $62(and creeping ever closer to its 200-day MA of $63.29), equity markets continuing to climb, and Canadian core inflation remaining in a “Goldilocks” type of situation that’s not too hot and not too cold at only 0.2ppts below the Bank of Canada’s 2.0% target. Furthermore, yesterday’s speech from Bank of Canada Deputy Governor John Murray did nothing to change view on CAD. He reiterated that the BoC plans on keeping the overnight rate at its current rock-bottom level of 0.25% until the second quarter of 2010, conditional of course on the outlook for inflation. But more importantly, there was no evidence at all that the Bank is planning on changing course at the June FAD, and going mixed at best. Consumer sentiment has weakened again - within the contraction zone - once the Government’s $A900 cheques (fiscal stimulus) were spent in March/April, and import demand continues to fall off a cliff –both consumer and capital goods imports fell again in April. In contrast, wage inflation remains resilient at over 4%/yr, but there are widespread expectations that this will ease as labour market weakness gathers momentum over the next 6-12 months.
However, investors have shrugged off the soft data and share the RBA’s optimism that recovery will materialize at the end of the year, and that near-term weakness will be “looked through”.
|
Linear Mode
