Forex Investment and Currency Trading

While financial markets appear to be calming down a bit, the news on the U.S. economy remains volatile. The economy eked out a marginal 0.6% annualized gain in the first quarter, matching the fourth quarter’s increase and marking the weakest two-quarter average growth rate since 2001. The housing market is slipping deeper and deeper into recession, while consumers are edgier, with confidence measures falling and retail sales activity slowing. The steady erosion in the labour market, sky-high energy prices combined
with real estate losses and earlier equity market losses mean that U.S. households will be looking for ways to pare back [...]

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FX Bottom-line: Interest rate expectations are once again guiding USD/CAD as tentative stability returns to global financial markets. Surprisingly, the changes in USD/CAD are more closely following Canadian rate expectations than changes in the US-Canada interest rate spreads.
The current rate outlook calls for both the BoC and FOMC to complete their easing cycles in H2 (BoC in July; Fed in Q4), and to prepare the market for rate hikes in H2 2009.
The interest rate environment, both on an absolute and relative basis, augurs well for a long USD/CAD position during the next 3-6 months. The expected rate cuts by the [...]

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Economic reports over recent weeks, particularly the third consecutive fall in payroll employment in March, have increased the probability that the US economy is in recession, a view shared (personally) by Martin Feldstein, chair of the NBER business cycle committee, who suggested the downturn may have begun in January. While there are hopes that the forward-looking tax rebate program enacted earlier this year and set to distribute about $65-70bn in rebates to US taxpayers later this quarter will help shortcircuit the downturn, that stimulus may be wiped out by the ongoing surge in gasoline prices. During 2H 2007 the average [...]

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