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The USD remains under broad pressure at the close of the week; commodity currencies are notable outperformers on the session so far with the NZD leading the gains and the CAD spurting about 1% higher on the day so far. Equities are a little firmer on the session and US futures are in the green but the USD is losing is linkage with equities as the global financial crisis abates – USD LIBOR has staged its largest one week fall since December – and the market focuses on the cost (in terms of the mounting US debt pile) and potential consequences (inflation) of the US’ efforts to lift the economy. Commodity prices remain firm, underpinning the USD bear tone and supporting the relative outperformance of the commodity bloc
over the past few weeks. We remain bullish on the CAD and continue to look for fairly sharp falls in funds in the near term. Technically, out target is 1.0465, the measured move objective derived from the 1.30/1.17 double top. As investors cast
around for hard and liquid alternatives to the USD, we think the CAD remains a stand out opportunity due to the BoC’s reluctance to enter into QE-type policies and Canada’s relatively better fiscal position. Custodial and real money were
the notable buyers of CAD earlier in the session and we think USD/CAD may be tipping into a slightly steeper rate of descent in the short term at least to target the mid 1.11 area (200-week MA); we look for firm resistance now in the low/mid 1.13s and still advise selling USD/CAD rallies.