[B]Trading the News: Canadian International Securities Transactions[/B]
[B][U]What is Expected[/U][/B]
Time of release: [B]09/17/2007 12:30 GMT, 08:30 EST[/B]
Primary Pair Impact : [B]USDCAD[/B]
[B]How To Trade This Event Risk[/B]
In the hierarchy of Canadian market moving economic indicators, the International Securities Transaction balance is hardly consistent in generating a tradable response from the Canadian dollar. However, market conditions during the past three releases were somewhat different than what they are today. Considering the recent trends in deleveraging and general flight from risky assets across the globe, the Canadian markets will have similarly been swept up in the repositioning. Though there is no consensus available for July report, the activity in the major markets may give a look into the likely outcome. For the month, the benchmark S&P/TSX Composite peaked and witnessed a near 1000 point decline before the close of the month; Government bonds started to trend higher; and the money market fund obviously advanced under the pressure of redirected capital flows. However, despite the change and general interest in the ultimate settling place for international investors investment capital, this usually tame indicator will be competing with a very tense USDCAD group that will be eagerly awaiting the FOMC rate decision. Unless this Canadian report is a considerable surprise, it is best to let it go.
Taking a fundamental cue from a strong Canadian net capital flows report would require a considerable jump in capital finding its way into the Canadian markets. Essentially, to generate enough interest in this lagging indicator to move the Canadian dollar further into its record territory, the market would likely need to see clear evidence that anti-risk for international investors means a demand for the nations bonds, equities and money markets funds. Even if there is a significant fundamental foot print from this report, it would still need to be monitored closely for post-release volatility and momentum in the lead up to the Feds rate announcement.
While a horrid drop in Canadian investment would likely hit the same wall of disinterest (due to US calendar) that a strong number would, at least this extreme would help to work against extreme positioning in USDCAD. If the pair is still near its record lows when a large deficit crosses the wires, it could encourage sidelined bears with open positions to take profit or square up before the Fed decision.