[AndrewWoo]

Today’s report’s of an export slump in Canada will likely increase anxiety about the recent surge in the CAD though it remains to be seen whether Bank of Canada (BoC) policy makers choose to upgrade the level of concern about the currency after what we saw as a relatively mild rebuke against the currency at last week’s post-policy announcement statement. Governor Carney is speaking in Montreal on Thursday and his comments will be closely followed for any further clues on whether BoC thinking has evolved. We suspect not and the likelihood seems that, with commodity prices continuing to strengthen, export numbers (if not volumes) will pick up again in May. While the weaker than expected trade data will make it perhaps a little harder to justify a much higher CAD at the moment, the rise in crude oil prices to north of $70 is a source of support for the currency. The two markets remain highly correlated but the linkage remains below the extremes – which held for more than three months – seen late last year and into the early part of 2009.

USD/CAD Negatively Correlated with Crude Oil


Of course, the correlation works both ways and a fall in crude prices will drag the CAD lower but the short term trend appears well set, with price comfortably above the 200-day moving average and poised, it would appear from a short term point of view at least, to push a little higher still. A lot of the positive work done by the USD late last week has been very easily erased (so far) this week. Traders remain bearish on funds and continue to look for a move towards 1.0465 (1.30/1.17 double top breakdown target) in the next few weeks and target a move to par around the turn of the year.