USDCAD Overnight Range 1.2223-1.2323

The US dollar is Mr. Toad and it has been on a wild ride this morning. Another bout of weak US economic data (Jobless Claims rose, Housing Starts and Building Permits fell) revered hard won US dollar gains in Europe. USDCAD which had scraped back above 1.2310 prior to the data plunged and is now 1.2228, below the overnight low. The break of major support at 1.2330 combined with a re-evaluation of the Canadian economic landscape and the prospect of higher oil prices have triggered a wholesale bail-out of stale Long USDCAD positions.

The overnight session was entertaining. AUDUSD took over where Canada left off in a lively Asian session. Short AUDUSD traders scrambled to cover positions when Australia announced a whopping 37,700 jobs increase and a drop in the unemployment rate to 6.1% from 6.3% and AUDUSD soared. Kiwi followed AUDUSD higher. USDJPY traders saw the carnage in AUDUSD and USDCAD and sold dollars as well. In Europe, EURUSD traders bought dollars and then reversed course just ahead of the New York opening. The US dollar has been offered ever since.
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The Loonie soared following the Bank of Canada slight shift to a more neutral stance supported by tweak of the language around inflation. It’s now “roughly balanced” rather than “more balanced” which in my opinion does not justify a 0.0125 point drop in USDCAD (From 1.2550 to 1.2425). That move was more a factor of intraday long USDCAD positions getting stopped out. The ongoing drift higher in WTI prices also contributed to the Loonies strength.

Overnight, the US dollar clawed back most of yesterday’s Retail Sales induced losses in a lively session. Economic data from China (GDP, IP and Retail Sales) came out on the soft side but didn’t have much of an effect on FX markets. European traders apparently decided that a minor miss in US Retail Sales didn’t warrant the reaction, especially when Greece’s EU membership is looking more fragile by the day. EURUSD has given back nearly all of yesterday’s gains.
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Our neighbors to the north have had a rough time of it lately. Only recently, the government announced the Canadian economy shrank 0.1% in the January of this year.The reason for this slowdown is obvious; it’s the crash in the price of crude oil which has severely hurt economic activity. Pundits and professors are coming out of the woodwork as we speak, crowing that the Canada is doomed—dogs and cats living together, fire and brimstone, end of the earth kind of stuff.


I’d like to take a contrarian view.

Yes,there is a current divergence in interest rates between the two currencies. The Fed is most likely to raise at some point this year while many analysts say the Canadian central bank could cut another 25 basis points in light of the recent, dismal economic performance. However, this view ignores a growing imbalance in Canada—rising levels of consumer debt. This problem was enhanced by the surprise rate cut in January, a cut meant to cushion the economy from the consequences of the falling price of oil, a major Canadian economic sector. I don’t think the central bank will want to exacerbate the credit bubble any further in Canada so I don’t think they will cut barring a major economic downside shock.

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USDCAD dropped from the early New York highs following comments from and advisor to Japanese PM Abe stating that JPY is too high at 120.USDJPY plunged from 120.80 to 119.75 taking the US dollar down across the board.

Overnight,China posted weaker than expected trade data and AUDUSD tumbled, dragging down Kiwi and the Loonie with it. Adding to the AUDUSD’s woes was a report that the Australian Treasurer was considering reducing iron ore revenue forecasts by $25 billion over next four years.

The “buy-the-US dollar theme continued into Europe although there wasn’t a clear catalyst for the move. The dollar rally fizzled in early New York trading following the JPY comments by one of Mr. Abe’s advisors.
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EUR/USD Reversed direction, trading sharply lower last week as continued uncertainties for Greece and a possible Fed rate hike in June pressured the rate. The week began with the pair declining after making its weekly high of 1.1035 on Monday despite Spanish Unemployment Change showing a drop of -60.2K, significantly higher than the anticipated -18.3K, while U.S. ISM Non-Manufacturing PMI came out in line with expectations at 56.5. The rate continued its decline on Tuesday despite Spanish Services PMI printing at 57.3 versus 56.6 expected and German Final Services PMI, which printed at 55.4, in line with expectations.
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The New Zealand dollar reached 99.78 Australian cents on Monday. For the first time since the currency was floated in 1985, it has almost caught up with its neighbouring Australian dollar and parity across the two currencies is imminent.

The saving grace for the Kiwi businesses exporting to Australia and the expats sending Aussie dollars home, is the RBA’s announcement that it will hold interest rates at their current level, which may slow the falling Aussie dollar trend in the short term.

However, this will not stop Kiwi businesses basking in the glory of six years of high performance and the country’s strongest economic climate in some time. Nor should stop savvy New Zealand consumers from celebrating the strength of their currency.
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There’s speculation that the Reserve Bank of Australia is going to have to bring the cash rate below 2% to cope with plummeting oil prices.

Collapsing commodity prices are already driving the Australian dollar down, a rate cut will cause it to fall even further and that’s before you consider the chance that the US Fed may decide to raise rates this year and boost the Greenback. So what does this all mean for your business?

Bill shock

There is hardly any product or industry that doesn’t involve overseas suppliers: whether for materials, components or outsourced services such as labour. Small businesses often feel more pain from currency fluctuations because they don’t have the tools and strategies in place that large corporates do, nor the scale to absorb fluctuations.
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Most economists will tell you that the real reason for the economic recovery in the United States over the last several years has been the shale oil boom across the country that was generated by the private sector, with no help from the U.S. government. However, that did not stop the Obama administration from taking credit for the recovery, anemic as it has been. Now as the price of crude oil has crashed, the American economy has slowed concurrently. This is not rocket science; but, I doubt the administration will admit this.

The real question is, when will the economy finally start to accelerate in a normal fashion as it has historically after such a severe downturn? I mean a real recovery, across all sectors of American economic activity? The answer lies in policy, not in some magic bullets from the Fed.
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Officially recorded remittances by the World Bank to developing countries were $435 billion in 2014, an increase of 5 percent over 2013. The growth rate is substantially faster than the 3.4 percent growth recorded in 2013, driven largely by remittances to Asia and Latin America.

Remittances to developing countries will continue climbing in the medium term, reaching an estimated $454 billion in 2015.

Global remittances, including those to high-income countries, are estimated at $582 billion this year, rising to $608 billion in 2015.

Remittances remain an especially important and stable source of private inflows to developing countries, as they bring in large amounts of foreign currency that help sustain the balance of payments. In 2013, remittances were significantly higher than foreign direct investment (FDI) to developing countries (excluding China) and were three times larger than official development assistance.

The brief notes that the global average cost of sending remittances continued its downward trend in 2014, falling to 7.9 percent of the value sent in the third quarter, compared to 8.9 percent a year earlier. However, the cost of sending money to Africa remains stubbornly high, exceeding 11 percent.
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EUR/USD Continued its rally last week as the Eurozone reported mostly better than expected economic data and the United States reported the lowest Non-Farm Payrolls number since December of 2013. The week began on a soft note, with the pair declining despite German Preliminary CPI increasing +0.5% m/m compared to +0.4% expected and Spanish Flash CPI, which declined -0.7% versus -1.0% expected. U.S. data had Pending Home Sales increase +3.1% m/m, significantly higher than the +0.5% that was expected. The rate extended its losses on Tuesday, making its weekly low of 1.0712 as uncertainty over Greece — which is due to make a payment to the IMF on April 9th — pressured the Euro. Continue reading

USDCAD climbed steadily higher overnight and during the early North American session. Falling oil prices are to blame. WTI dipped to $47.70 with expectations that an Iranian nuclear deal could lead to another million barrels per day of crude hitting the market as sanctions get removed. Anticipation of better than expected US data this week, including nonfarm payrolls on Good Friday, is also providing the US dollar with support.
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EUR/USD Extended its previous week’s gains last week as the United States reported mixed economic numbers while Eurozone economic data was for the most part better than expected. The week began with the rate gaining ground on Monday after making its weekly low of 1.0766 after ECB President Draghi in a speech stated that, “We expect inflation in the euro area to remain very low or negative in the months ahead, because the recent fall in oil prices will continue to influence the figures until later in the year. However, inflation rates are expected to start increasing gradually towards the end of the year. They will be supported by aggregate demand, by the impact of the lower euro exchange rate and by the recovery of oil prices from their current troughs in the years ahead.” Also on Monday, US Existing Home Sales came out at 4.88M compared to an expected 4.91M. Continue reading

The US dollar barely budged on the Q4 GDP report (2.2%) and is ending the week on a down note having lost ground across the G-10 spectrum. The debate is still raging as to whether the current bout of US dollar weakness is merely a correction of the massive oversold positioning or perhaps the start of a consolidation phase. The outperformance of European data vis a vis the US data is behind the consolidation arguments.

USDCAD traded higher overnight due to a retreating oil price and general US dollar strength. (it has since come off) Oil traders have apparently concluded that the Saudi/Yemen hostilities doesn’t mean much for oil supplies and WTI has traded lower. EURUSD traded heavily in Europe with traders awaiting Monday’s revised Greek debt reform package. In the UK, BoE’s Mark Carney said that the next interest rate move is likely up. It wasn’t news.
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Being apathetic about currency exchanges rates can be very damaging for your business.

Let’s look at some of the dangerous myths that people cling to, to justify keeping their head in the sand.

1. What goes up must come down

Or the reverse: that a sinking currency must recover eventually. History tells us that movements in many markets tend to have cycles, but there’s no way of knowing when the tide may turn your way again. If you look at this graph of AUD/USD history (red line, with GBP/blue and EUR/green overlaid) there’s no obvious regular pattern of peaks and troughs.

will shepherd graph 200315
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EUR/USD Reversed direction, trading sharply higher last week as the FOMC Statement was interpreted by the market as more dovish than expected, and with mostly lower than expected economic data out of both economies. The week began on a positive note, with the rate gaining after making its weekly low of 1.0479 on Monday after ECB President Draghi stated in a speech that, “We are meeting against the backdrop of a steadily recovering economic situation in the euro area. Most indicators suggest a sustained recovery is taking hold. Confidence among firms and consumers is rising. Growth forecasts have been revised upwards. And bank lending is improving on both the demand and supply sides.” Continue reading

America’s influence is waning in the world, militarily, economically, and culturally. The global financial structure which has been in place for decades is unraveling and it will not end well for the United States’ currency and economy. This change is being driven by a desire of many nations with totalitarian capitalism to rid themselves of a reliance on the US Dollar which gives the U.S. power over them through threats to remove a country or institution from the dollarized financial system.

We’ve discussed the consequences to the dollar and America in previous posts as far as reserve currency status and interest rates are concerned and the severe problems they could bring. What I’d like to get across right now is the level of uncertainty which is building up across the global financial architecture.
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USDCAD spiked to 1.2830 on a weak Canadian Wholesale Sales report (-3.1% vs. -0.8% forecast) but has since retreated back to pre-data levels (1.2800). The Loonie was already back-tracking as oil prices continued to leak lower. (WTI $42.28/bbl) and a hawkish FOMC statement could be the straw that breaks the Loonies back. If the FOMC statement or press conference convinces traders that June is the likely lift-off date for US rates-that and falling oil prices will send the Loon to the moon.

In a surprise move, Sweden’s Riksbank cut interest rates by 0.15 bps to -0.25 to combat SEK strength which created a bit of a stir among USDSEK and EURSEK traders.

Elsewhere, patience is wearing thin over the incessant, intense chatter on patience in the FOMC statement. Enough already. Kiwi and Cable were the live wires overnight. Kiwi has recovered a good chunk of its losses following the poor GlobalDairyTrade auction. That is more a factor of pre-FOMC position adjustment than anything else. Cable got whacked on a combination of a soft employment report and on-going election jitters. The rest of the majors were content to idle within narrow ranges.

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The above views expressed in this market commentary are only views and not investment advice.This is for informational purposes only and we make no representations as to the accuracy or completeness and will not be liable for any errors or omissions. Agility Forex Ltd is registered (M13773887) with FINTRAC , Canada and headquartered in Vancouver British Columbia, Canada.

I learned from my years on the “street” to buy on the rumor, sell on the news. Well, the news for weeks now has been the European Central Bank (ECB) starting its quantitative easing program and the Federal Reserve Bank of the United States possibly raising interest rates to ward off inflation and bring America out of its free-money bliss. In fact, it seems that this sentiment has become a very crowded trade, pushing the dollar to levels not seen in over a decade.

However, this is now maybe an old story and judging from the PPI data today, the conventional wisdom could very well be wrong. The numbers that came out this morning showed a decline in the Producer Price Index when the consensus estimate was for an increase of 0.3%. Of even more importance is the fact that this was the fourth monthly decline in a row. The PPI is down over the last year where economists expected a flat reading.
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EUR/USD Continued its sharp decline last week as the ECB started its government bond purchase program and the market continued pricing in anticipated guidance for the Fed’s interest rate policy. The rate started the week consolidating at a slightly higher level after making its weekly high of 1.0906 on Monday after the ECB began purchasing bonds under its recently expanded QE program. Also, the Sentix Investor Confidence Index printed at a 7 year high of 18.6, significantly higher than the reading of 15.3 that was expected. The pair then began selling off sharply on Tuesday after speculation in the market that the Fed would remove the word “patient” from their upcoming statement next Wednesday, which would set the stage for a rate hike this summer. Economic numbers had U.S. JOLTS Job Openings at +5.0M, in line with expectations and French Industrial Production, increasing +0.4% m/m versus -0.2% expected. Continue reading

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