December 8-12 2014
The economic calendar for the
U.S. was very light last week, thus currency movements were caused by other
factors. Position adjustments ahead of the Japanese election and a $5 slide in
the price of crude
helped the yen
to its biggest
weekly gain in 16-
months. CHF was spurred higher by the inaction of the Swiss central bank as it
declined to administer more easing even though the EUR/CHF rate was dangerously
close to the 1.20 floor. The euro moved higher after the disappointing Targeted
Long-Term Refinancing Operations only injected €130B into the euro zone’s
banking system. Thus, just like the Swiss situation, less monetary
accommodation led to a higher currency. And we can also place the central bank
of New Zealand in this category as it refused to sound dovish by stating that
further rate hikes are needed. On the other side of the monetary spectrum lay
the AUD and CAD. Reserve Bank of Australia Governor, Glenn Stevens, said the
AUD needed to fall to 75 U.S. cents in order to help the national economy. The
Bank of Canada continues to retain its neutral bias because of high consumer
debt loads and imbalances in the housing market remain a concern. The price of crude
at $58 is also weighing on the currency.
As you can see from the one week
relative performance chart, the USD experienced a correction/consolidation last
week after three straight weeks of gain. This was only the fourth down week in
the dollar index over the past twenty-two weeks. As always, the question is how
long it will last? Will it be a short consolidation
like the previous three or will it turn into a more prolonged correction?
Currently, the market is
convinced that the divergence in economic growth and monetary policy are in the
USD’s favor. This position will be tested this upcoming week with the FOMC
announcement on December 17th. Speculation is rife that the FOMC statement will
either delete or dilute the reference to "considerable period" as the
next step towards preparing the markets for a rate hike next year. If the Fed
does this and does not indicate that it is not meant to convey an expectation
of an earlier liftoff than previously communicated, either in the statement
itself or in Chair Ellen’s press conference than the USD will charge higher
putting an end to last week’s consolidation.
Alternatively, the USD’s
consolidation could turn into a more prolonged correction if the Fed listens to
what the bond market is saying and to the state of the global economy. US
5-year breakeven inflation rate printed at 1.20% last week, which means that over
the next five years investors expect inflation to average around 1.2%, the
lowest since September 2010. Add to this the following factors: 1. Europe’s
deflationary pressures, 2. Japan’s struggles with its exit from deflation, 3.
China’s opting for structural reforms over stimulus, and 4. the deflationary
effects caused by a precipitous decline in oil prices. With
All four considered, you will get
a very different picture. The question is with all of this going on can the
U.S. push on by itself? Therefore, the big surprise this week may be that the
Federal Reserve actually listens.
VBCE Daily Foreign Exchange Update for Wednesday, Dec. 17th,
2014
USDCAD spot rate: 1.1645 - 1.1650 (AS AT 8:16AM PST)
RANGES:
|
Asia:
|
1.1623
|
to
|
1.1646
|
|
Europe:
|
1.1636
|
to
|
1.1660
|
|
North America:
|
1.1629
|
to
|
1.1672
|
Technical Support / Resistance:
S2
|
S1
|
R1
|
R2
|
1.1465
|
1.1600
|
1.1667
|
1.1700
|
Key Economic Data Releases:
-Canada wholesale sales: 0.1%
(exp. 0.1%)
-U.S. consumer price index m/m: -0.3% (exp. -0.1%) y/y: 1.3% (exp. 1.4%)
-U.S. CPI ex food and energy m/m:
0.1% (exp. 0.1%) y/y: 1.7% (exp. 1.8%)
-U.S. current account (Q3): -$100.26 billion (exp. -$100 billion)
-U.S. Fed interest rate decision
/ FOMC statement: TBA ~ 11:00am
Key Event Calendar:
DATE
|
CANADA
|
U.S.A.
|
|
|
|
Dec. 18
|
|
Jobless claims, Markit services PMI
|
Dec. 19
|
CPI, retail sales
|
|
Yesterday, USDCAD traded from a 5 and a half year high of
1.1673 down to 1.1607 before bouncing to hold near 1.1636 for the remainder of
the session. Volatility levels were high as markets swung from losses to gains,
and then back to losses. (DJIA saw nearly a 400 pt range) After trading down to
a 5 year low of $53.64, oil rebounded to $57. Overnight, global markets
remained on edge with USDCAD holding a 1.1623 – 1.1660 range. U.S. inflation
data came in lower than expected this morning and markets are trending higher.
The USD and CAD are the best performing currencies this morning as the market
awaits the 11:00am U.S. Fed announcement. USDCAD opened this morning at 1.1640,
dipped to 1.1629, and then climbed to test yesterday’s high of 1.1672. This
move up was short-lived with USDCAD falling back towards 1.1620 as oil gains to
$58. Currently, the TSX and the DJIA are up 1.75% and 0.53% respectively.
EURCAD is down 0.60% trading between 1.4430 and 1.4559. GBPCAD is down 0.50%
trading between 1.8208 and 1.8337. JPYCAD is down 0.70% trading between 0.00992
and 0.0100. Gold is up 0.21% trading between $1,191 and $1,203USD/oz, silver is
up 0.78% trading between $15.63 and $15.96USD/oz, while oil is up 0.72%,
trading between $54.24 and $56.64.
Sources: Reuters, Bloomberg, FXStreet,
RBC Capital Markets, Bank of Canada, U.S. Federal Reserve, CNBC, Forexlive
