The loonie has finally broken out of that death grip range that we were beginning to become accustomed to midweek. At the time it seemed that everyone was afraid to do anything. However, once the risk adverse trading strategies again became in vogue, especially after the Euro finance minister agreed to hold back Greek aid, the dollar got its second wind and headed strongly north of parity. The risk reward play had short term players selling the CAD below parity. The current loonie strength in part reflects gains in resources and crude prices. Obviously, any modest slowdown in the increase of commodity prices will lead to further profit taking.
Below are some other highlights of the week:
- CAD: Building permits advanced +11.1% to +CAD$6.8b after falling -2.6% in November. The December building permits level is the highest in five-years.
- FED: Bernanke testified before the Senate Budget Committee. He reiterated that there is no notion of priority for maximum employment over price control. He repeated that he does not see any inflation issues over the near term and noted the Fed will work to get both parts of its mandates back on track. He will give his semiannual Congressional testimony on monetary policy on Feb 29, the same day as the ECBÃ¢â‚¬â„¢s second LTRO (long term refinancing operation).
- CAD: Canadian housing starts came in at +197.9k, right on expectations and an advantage for the growth and commodity sensitive Loonie.
- US Tsy: $38b US 10-years were taken down at +2.02% with a strong indirect bid, unlike the 3-year auction with its tail.
- CAD: CanadaÃ¢â‚¬â„¢s monthly house prices eked out a small gain in December (the weakest in four months), rising +0.1% from Novembers advance of +0.3%.
- USD: US jobless claims fell-15k to +358k last week. ItÃ¢â‚¬â„¢s and unexpected decline that provides more proof that the jobs market is improving. The report is consistent with last weeks stellar NFP report (+243k). The four-week moving average came in at its lowest level in four years, printing-11k to +366,250.
- CAD: Canadian Trade balance doubled in December to +CAD2.69b from +1.7b in November, beating all market expectations. This is CanadaÃ¢â‚¬â„¢s largest surplus in four-years. Exports increased +4.5% while imports edged to +0.8%.
- USD: US trade gap widened to a three-year high, with the deficit increasing for a second straight month in December by +3.7% to -$48.8b on the back of rising imports of oil and cars. The deficit with China hit a record high last year and is expected to be top topic at next weeks visit by VP Xi Jinging to Washington.
- USD: University of Michigan index of consumer sentiment fell in January by -2.5pts to 72.5. The current conditions category being the largest drag.