[achiever]

We have broken below the 1.0633 level and have triggered a bout of USD selling. The market is getting oversold but momentum could take us lower first. Equities and oil are doing very well and are adding fuel to the fire.

Big stories:

Reserve Bank of Australia hiked the overnight rate in a surprise move, citing improving economic conditions (hikes weren't expected until Nov). The market's starting to talk about which Central Banks are next. Norway looks like the best candidate with Canada and New Zealand following suite.

There was a story out (that was later vehemently denied) about secret meetings between the Gulf States, China, Japan and Brazil to discuss pricing oil using a basket of currencies rather than the US dollar. The article cited a 9 year plan (a lot can happen in 9 years) and included currencies that don't even exist yet like a "Gulf Common Currency". Whether true or not this is just adding to the "sell US dollar" sentiment.

We'll probably see a bit more momentum selling especially if we get our daily close below 1.0633 today. However traders don't think these levels are sustainable yet and we'll probably see a bounce up over the next week or so. These are good levels to be buying US dollars as part of an overall layering strategy.

[Calxy]

The Canadian economy does not have the "location, location, location" advantage of the AUD; in fact, the neighborhood is running a bit to seed in economic terms. However, with other commodity currencies likely to raise rates within a couple of months, the BoC's commitment not to raise rates before the middle of 2010 may be one that it comes to regret. It was made much earlier in the year when global recovery prospects looked much gloomier than they do now, and the commitment to keep rates extremely low may have been viewed as costless. If the Canadian economy recovers as quickly as expected, the BoC would be very likely to raise rate before mid-year, absent the commitment. As other commodity exporters begin to raise rates, the risk will be either that investors begin to worry that the BoC will move earlier or that they will send signals that the post-mid-year hike will be unusually sharp.

The Ivey PMI will be released at 10AM today; the consensus expects a small gain to 56.2 from 55.7. Historically, the gains in September are much stronger on a seasonal basis, so there is a risk that the combination of an emerging recovery and seasonality could push Ivey over 60 for the first time in a year. While Ivey is not normally a major CAD driver, there may be some sticker shock in a reading over 60.