Trying to wrap my head around the recent CAD dominance…
…up today roughly 500P across the board.
Where’s this demand coming from?
My CAD trades have moved against me with some fervor today. Yikes.
On the FUNDY front:
This week: Trade balance this morning & GDP m/m on 6/30 both worse than expected
Last week: RMPI & IPPI m/m worse than expected
3rd week in June saw some great prints for the CAD economy, but with the surprise NFP and two high-impact CAD pieces this morning coming in under expectations, I will say I’m a bit shocked @ what the market did today.
I’ve been around the block enough times to avoid asking questions like this, but, I still wanted to put it out there in case anyone else got trapped in some CAD trades today.
To be honest…I’m not 100% convinced the moves are sustainable- especially on CADCHF (I know the SNB cut 50 BP on the REPO rate…but that type of move just smells like a trap to me).
Look @ the CADCHF freakin’ H1 Chart- talk about parabolic?!
That market didn’t miss a beat for 10 straight hours of buying.
Maybe today’s strong CAD was driven more by weaker AUD & EUR than USD, and very thin pre holiday markets?
Here’s a FYI cut & paste off of the Thomson Reuters - IFRMarkets wire, might explain some of today’s CAD strength.
[I]NEW YORK, July 3rd, IFR- USD/CAD opened Noram marts 1.0647, -20 pips vs the close, O/N range 1.0646/74, AUD/CAD 0.9980 -90 pips vs the close. Aussie hit by RBA’s Stevens’ comments, sparked AUD/CAD sales (More) Noram marts were on hold for the ECB and NFP, ironically it was the latter that triggered an explosive move in EUR/CAD. US NFP +288k, 1.0680 paid from 1.0656 and a lot more expected. When USD/CAD reached it’s peak a leveraged fund smashed EUR/CAD on expectations of dovish ECB remarks, EUR/CAD plunged from 1.4563 highs to 1.4506, paused and got hammered again, session low 1.4443, USD/CAD battered down to 1.0620 lows, closed nearby. ECB comments did accelerate the sales pace [ID:nIFRbkqhKV] Liquidity was thin ahead of the long holiday weekend in the US and the 1.00PM equity & bond market closes.[/I]
Cad has gained strength over last few weeks because rate cut bets have been priced out as the CPI (which had originally caused the rate cut to be priced in to begin with) came in strong in the last reading, and rate hike bets from the Feds have been priced out as Yellen has been talking quite doveishly.when usdcad was around 1.11, the COT report showed the loonie was extremely oversold, hence the adjustment in rate expectations snowballed into a loonie short squeeze as those positions unwound.
Today’s moves stemmed from three things. As Dpip mentioned, the Aussie took a beating over the last few sessions. Cad and Aussie are favs of reserve fund managers, and with Aussie falling out of favor, they adjust into Cad. Second, Canada’s trade balance, although more of a deficit then expected, the overall exports were strong, second highest on record. That bodes well for future growth. Third was the NFP… The headline number was great, but the details showed little wage growth. Without the wage growth there is little inflationary pressure which is what is ultimately needed for Yellen to start talking rate hikes. Without rate hikes, the positive employment number is risk positive (hence the equity rally today) which is cad positive. Positive US growth data is positive for Canada, and even more positive for Canada dollar if the growth data doesn’t come with tightening expectations.
Going forward… 1.06 is going to be tough support… The COT probably shows all short cad positions have been unwound this week, therefore the short squeeze is done. Today’s report should ultimately support the USD, plus oil prices should be going down over the rest if the summer as Iraq tensions ease and Iranian sanctions banning their oil exports could be eased. This would be cad negative as it cuts into their biggest export, crude oil. Furthermore, Saskatchewan has experienced pretty bad flooding which will affect grain exports. Finally, July 16th is critical, as poloz will be making an interest rate statement then. The last several statements he has caused the loonie to plummet… No doubt cad bulls will be wary of this as we get closer to that date, so at some point this down trend has to turn into a consolidation period as cad traders hunker down. Here at 1.06 is the most logical place for that to occur.
