The Canadian Dollar (CAD) must spend a number of weeks below 1.1 vs USD to alter bearish scenario
- Written by: Gary Howes
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The Canadian dollar (CAD) is headed for its 6th day of gains vs the pound sterling and 5th consecutive day of gains vs the US dollar.
With short-term momentum having found the CAD once more at mid-week we see the following levels:
- The pound sterling to Canadian dollar exchange rate: 0.29 pct lower at 1.8045.
- The euro to Canadian dollar exchange rate: 0.03 pct higher at 1.4990.
- The US dollar to Canadian dollar exchange rate: 0.05 pct higher at 1.1089.
BE AWARE: All the above CAD quotes are taken from the wholesale inter-bank markets. Your bank will affix a spread to the rate at their discretion when passing on a retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.
The bounce in the CAD continues
Consensus expectations call for a bounce in jobs last month after the shockingly poor December data, which may give the CAD a further, modest boost.
"That will not alter the underlying dynamics that contributed to the late 2013 sell-off in the CAD through—worryingly low inflation from the BoC’s perspective and the bias towards a dovish policy outlook . We are assuming a bounce in January jobs too but another weak report will put the skids quickly back under the CAD," says Shaun Osborne at TD Securities.
Agreeing with Osborne at that the bigger picture is still pitted against the Canadian dollar is Stephen Gallo at BMO Capital:
"At this stage we are remaining patient regarding our medium-term bullish view on the pair (USD/CAD), and we won’t look to resist a further ‘clear-out’ of CAD shorts over the balance of the week. We’ll look to get short USDCAD on a test/break of 1.104, which should open the possibility of a further near-term correction to 1.097-1.100."
"We still look to that range as a good area to buy the pair for another medium-term leg higher. The BoC still can still jawbone for a weak CAD even with moderate growth, and CAD longs/shorts will be in an even better ‘balance’ on a move to the 1.095-1.100 range.
"We won’t really start to get nervous about our medium-term bearish CAD view until the pair spends a number of weeks below 1.100."
Global markets tread a cautious path
Risk sentiment remains constrained, despite this we have seen some gains on Wednesday.
Investors traded cautiously throughout this morning’s session in anticipation of today’s U.S jobs data.
The FTSE 100 looks set to break its five-day losing streak with shares in RSA buoying the index.
Volatility - reaching a seven month high yesterday - has finally subdued, suggesting investors’ concerns are easing.
This comes despite a report this morning showing UK service had unexpectedly slowed in January. Activity did however remain strong, indicating a strong start to 2014.
Today’s data is the last before the Bank of England announces its February rate decision (tomorrow mid-day).
"The impressive speed of Britain’s recovery has added pressure on the central bank to raise rates sooner than planned. However, policymakers have stressed that the bank is in no hurry to hike interest rates as inflation has fallen to its target and wage growth remains subdued," says Max Cohen at Spreadex.
Whilst Britain's economy had one of the fastest recoveries among industrialised nations last year, growth has largely been driven by household spending.
The Central Bank is making an effort to shift towards business investment and stronger exports.
