Updates (2013-2014)

Expected USD/CAD Range: 1.088 – 1.102

Update: All eyes are on the Bank of Canada. No one expects a change in rates. The key question is whether the statement and the accompanying monetary policy review indicate that the Bank has become more dovish since the last statement or whether the bank will maintain its already existing mildly dovish language. We believe that the market is positioned for a marginally more dovish statement and that it may very well be disappointed in that expectation. As a result, while we anticipate that the loonie will be weaker by the end of the year, we think it is poised for a short term rebound after the today’s statement which is expected at 10 AM.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.092 – 1.098

Update: After spending most of the morning above the 1.10 level for the first time since 2009 on the back of broad US Dollar strength, the loonie regained some lost ground after a better than expected Canadian manufacturing figure sales figure and is now trading around 1.097. More importantly, the market remains very much focused on the Bank of Canada statement tomorrow. We believe that the market is positioned for a marginally more dovish statement and that it may very well be disappointed in that expectation. As a result, while we anticipate that the loonie will be weaker by the end of the year, we think it is poised for a short term rebound after the tomorrow’s announcement.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.092 – 1.098

Update: The Canadian Dollar is stronger by just a touch this morning and trading at 1.095. The focus is almost entirely on the Bank of Canada statement on Wednesday. While no one expects a rate cut, nearly all market participants seem to agree that the statement might hint at such a move or at least be more dovish than the December statement. Indeed, the market seems to have priced in such a sentiment. We do not agree with the consensus view on this one. First, we are not sure that the statement will indicate a change in the stance of the Bank of Canada. Second, we are concerned that the level of market unanimity on the issue might be setting us up for a significant reversal. We continue to believe that the Canadian Dollar will depreciate over the course of the year but would be buyers in the short term, especially into the Bank of Canada announcement this week. Most US markets are closed due to the MLK holiday.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.093 – 1.098

Update: While it is never easy to completely separate the impact, so far this year, the weakness in the Canadian Dollar has been mostly due to domestic factors that have driven the loonie lower. Today we are seeing a clear example of US Dollar strength driving the same trend. The US Dollar is up against almost all major currencies (the Pound Sterling being the one notable exception) and held those levels even after some disappointing statistics on housing starts. The market remains focused on Wednesday’s Bank of Canada release as the next major catalyst for the loonie.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.090 – 1.096

Update: The Canadian Dollar is mildly stronger this morning and taking a break from the seemingly relentless 2014 declines. The number of jobless claims in the US and inflation figures came in at expected levels but the US Dollar is down across the board. The focus is now quickly turning from economic statistics which give us a sense of the relative strength of the US and Canadian economy to the Bank of Canada release next week which may provide further indication as to whether Governor Poloz intends to continue to simply talk the Canadian Dollar lower or whether he intends to take any affirmative steps in that direction (i.e.: cut rates).

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.092 – 1.097

Update: This could be the first sentence of our update almost every day so far in 2014: The loonie reached new lows yesterday, a move that is unlikely to reverse any time soon. The US Dollar reached 1.099 overnight and is currently at 1.095 against the loonie. Much of the weakness in the last day has been due to overall US Dollar strength. However, while it is true the US Dollar has been gaining strength since the beginning of the year, the loonie has also been the weakest performer among the majors (see table below). Among other factors driving the negative sentiment on the loonie are (a) a dovish Bank of Canada perceived to be pushing for a lower Canadian Dollar, (b) an unhealthy jobs picture, and (c) a worrying export picture.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of …

Expected USD/CAD Range: 1.087 – 1.095

Update: After showing some modest strength yesterday (mostly due ot overall USD weakness), the Canadian Dollar is again near four year lows and currently trading at 1.092. The loonie also benefited yesterday from the Bank of Canada’s business outlook survey which said there are some positive signs for the economy as perceived by businesses surveyed and likely a result of US economic strength. This morning, retail sales in the US came in at higher than expected, which gave the greenback yet another boost and gave ammunition to those who will argue that last week’s data pointing to a weak US labor market was a blip on the radar.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.087 – 1.097

Update: After a tumultuous week of Canadian Dollar weakening, we are in for a week with little headline economic data on the schedule. Among other things, last week brought, in no particular order, reaffirmation that the Bank of Canada is more concerned about disinflation and more dovish than any time in the last 18 months, a Finance Minister who was told by Governor Poloz to expect loonie “softness”, a disastrous jobs report, and finally an overall strengthening US Dollar. Perhaps not surprisingly, the Canadian Dollar is now the weakest performing major currency for 2014 and down nearly 3%.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.092 – 1.098

Update: The Canadian Dollar is now down nearly 3% for the year and at a 4 year low. While much of the weakness has been due to general US Dollar strength, it is worth noting that so far in 2014 our loonie is the worst performer amongst the majors implying that there are domestic factors at play. Indeed, there are multiple reasons for the weakness, including expected strength in the US economy, indications of a quick taper from the FOMC and a Bank of Canada that is seemingly increasingly focused on the spectre of disinflation and viewed internationally as dovish.

This morning, the picture was clouded by employment data in the US and Canada. Both countries underperformed substantially relative to expectations. The result has been US Dollar weakness against all majors except the lowly loonie which underperformed even the weakened greenback. We are now at 1.094.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …

Expected USD/CAD Range: 1.066 – 1.073

Update: The Canadian Dollar is now down nearly one percent for the year. The move is a result of (a) the overall strength of the US Dollar, (b) Finance Ministry Flaherty’s comments to the effect that Governor Poloz has predicted a “softer” Canadian Dollar, and (c) this morning’s trade data which showed that for Canada’s merchandise trade position was at a larger deficit than forecast for November and estimated for October.

The Big Picture: The Bank of Canada remains cautiously optimistic on the Canadian economy but dropped its tightening bias in October. Indeed, at the moment, the primary concern of Governor Poloz seems to be inflation rates that are well below the Bank’s 2% target and the …