Week in FX Americas – Loonies Split Personality

The CAD currently possesses some untamable traits. Just when you think the “big”; dollar has safe haven dominance across the board, long CAD trades are back in vogue despite the negative economic headlines. It is thought that too many short CAD positions were trying to call the shots on Friday early, eventually allowing the USD to back down from its weekly highs.

For a brief period, Canadian tepid economic growth and potential worries about the US sequester dragging on US growth, strengthened demand for safe-haven Canadian government bonds. However, it seems that investors extracted signs of economic resilience in the otherwise lackluster Q4 gross domestic product report and embraced the fact that the data was not any poorer, had the loonie rallying.

The annualized Canadian headline at +0.6% matched consensus expectations, while falling short of the BoC +1% forecast. This latest proof of Canada’s softening economy did report some underline firmness in some of the subcategories, such as business investment and domestic demand. These encouraging signs have taken some of the shine of the dollar, allowing the loonie to seek firmer footing sub–1.03. How long can this continue? Investors have reason to be cautious against optimism, with a –0.2% decline in December suggests that the Canadian economy has its work cutout. USD bids are beginning to accumulate ahead of 1.0250, the last significant resistance point on the way up this week.

• USD Manufacturing Rises at Fast Rate
• USD Manufacturing Loses Momentum in February
• USD Auto Industry Recovers YoY and MoM
• Fisher Wants Fed to End QE
• Senate Bills to Postpone Sequester Rejected
• US Labor Market Improves With Lower Unemployment Claims
• IMF Warns US Growth Forecast Will Fall if Sequester is not Avoided
• US Senate Confirms Jack Lew as Treasury Secretary
• US GDP Grows Slowly in 2012 4Q at 0.1 percent
• Fed May Maintain Asset Balance After Exiting QE
• US Factory Orders Remain Strong Despite Sequestration
• US Spending Cuts will not Prompt in Downgrade says Fitch
• Bernanke Downplays Risk of QE
• Jack Lew Backed by Senate for Confirmation Vote
• US Home Prices Rise in December
• US Consumer Confidence Climbs in February
• US Fed’s Stimulus is Spurring Employment in Housing and Autos Industries

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.