Tag Archives: CAD

Canadian dollar bearish bets reach highest in five months

I spoke with Reuters about CAD positioning on Jan 29, 2016.

Bearish bets on the Canadian dollar rose this week to the highest in five months, Commodity Futures Trading Commision data showed on Friday, as steady Bank of Canada policy an and oil price recovery failed to shake speculation against the currency.

Net short Canadian dollar positions increased to 66,819 contracts in the week ended Jan. 26 from 66,386 in the prior week. That is the most extreme net short position since August last year.

“Changing the speculative mindset is like turning an ocean liner,” said Adam Button, currency analyst at ForexLive in Montreal.

The currency has rebounded 5 percent from a 12-year low after the Bank of Canada surprised many traders last week and left its policy rate on hold at 0.50 percent.

A rebound in crude oil prices of more than 25 percent from 12-year lows has been a major driver. The risk-sensitive commodity Canadian currency has also benefited from dovish tilts by the European Central Bank and the Federal Reserve, as well as a Bank of Japan rate cut into negative territory.

“These (short) positions were built at much better levels,” said Button. “The long-term speculative bets against the Canadian dollar can easily ride out a six-cent rebound.”

To be sure, the currency could rally further, raising pressure on speculators to pare positions.

“If we continue to see the Canadian dollar rally then some of those shorts will probably be covered,” said Jack Spitz, managing director of foreign exchange at National Bank Financial.

But investors may be better off selling into any near-term Canadian dollar rally, said Bipan Rai, director of foreign exchange strategy at CIBC Capital Markets


My CAD view in Reuters interview

Canadian dollar slips on crude weakness, Fed rate signals

By Alastair Sharp
TORONTO, Nov 12 The Canadian dollar tumbled to its weakest in six weeks against the U.S. dollar on Thursday before paring some losses, as falling crude oil prices and mixed messages from the Federal Reserve on U.S. monetary policy heightened investor jitters.
The loonie, as Canada’s currency is colloquially known, gyrated sharply, with its strongest level of the session notched at C$1.3225 and its weakest at C$1.3342. A heavy slate of appearances by Fed policymakers mostly lined up behind a likely December interest rate hike, although one top official said it could be well into 2016 before an increase is justified.
“Playing this game of deciphering Fed messages is leading to frustration and uncertainty from the market, and that manifested itself today,” said Adam Button, currency analyst at ForexLive in Montreal. “Uncertainty breeds contempt.”
Button expects to see the Canadian currency at C$1.40 by mid-next year as oil production continues to outpace demand and the Fed possibly raises rates multiple times. “It’s only a matter of time until the weakness in oil clobbers the Canadian dollar,” he said.
Oil prices tumbled almost 4 percent on Thursday, accelerating a slump that threatens to test new six-and-a-half year lows.
The Canadian dollar settled at C$1.3282 to the greenback, or 75.29 U.S. cents, weaker than Tuesday’s official close and Wednesday’s 4 p.m. (2100 GMT) reading of C$1.3265 rate, or 75.39 U.S. cents.
A sharp drop in China’s October bank lending fed concern about the global growth outlook. It follows weak trade, inflation and industrial production data from China this week that has weighed on commodity markets.
Canadian government bond prices were higher across the maturity curve, with the two-year up 2.5 Canadian cents to yield 0.649 percent and the benchmark 10-year up 5 Canadian cents to yield 1.703 percent.
Bank of Canada Senior Deputy Governor Carolyn Wilkins will speak in Toronto on Friday morning, addressing the topic “Innovation, Central-Bank Style.”
Investors will also be looking forward to U.S. retail sales data on Friday.

Bank of Canada Could Emphasize CAD Sweet Spot

Thursday’s Bank of Canada rate decision will be rightly overshadowed by Greece and the pending US and Canadian jobs reports on Friday but once the short-term smoke clears, the central bank will have outlined the case for a long-term CAD rally.

Economists and the market see no chance of a rate hike on Thursday, leaving the overnight rate at 1.00%, where it has remained since September 2010. The market is also pricing in almost no chance that rates are any different next March than then are right now.

The decision will feature no clear guidance on rate moves in the near future but will offer a clear indication that policymakers have seen improvement. The Bank of Canada forecast 2% growth this year but with European risks minimized and US economic trajectory improving, the consensus is moving higher.

New risks have emerged from Iran and China.

The run-up in the price of oil convinced US leaders that a war with Iran would be too costly at the gas pump. As a result, crude prices are coming down to levels that remain favorable to Canadian energy exports without stifling US spending.

Chinese leaders lowered growth estimates to 7.5% for this year after nearly a decade of sandbagging the market with 8% forecasts. The BOC is unlikely to be swayed by the change because it has also been accompanied by pledges to increase imports and lower import tariffs.

With inflation pressures low, the Bank of Canada has the luxury to wait until at least mid-summer before the market will start asking hard questions about raising rates but Thursday’s decision will be an opportunity to show that hikes are visible on the distant horizon.

Aside from more upbeat commentary, the BOC may change its key language on when the economy is anticipated to return to full capacity, or when the output gap will close. The current forecast is the third quarter of 2013. If that comes down, CAD will rally.

Even if the BOC decision is less-rosy than I anticipate, I see the Greek PSI deal proceeding as expected with the potential for upside surprises in US and (especially) Canadian jobs data. This should underpin continued Canadian dollar strength.

I shared more thoughts on CAD with a Reuters reporter in a story today: http://www.reuters.com/article/2012/03/07/markets-canada-dollar-bonds-idUSL2E8E7G2920120307


A look at the USD/CAD chart

I have been recommending USD/CAD shorts at ForexLive for the past month based on the break of the wedge from September to mid-January.

The trade worked wonderfully at first, quickly falling from the 1.0150 entry point to below parity.Last Monday, Feb 20, the decline looked like the start of another leg down but the pair has since rebounded 100 pips after falling as low as 0.9907.

Another look at the chart is in order.


The pair has been trapped in a 09907 – 1.0052 range for the entire month of February — less than 150 pips. As a trend-following trader, that’s a tough way to make money.

The low coincides with the late-October low of 0.9895 and it will take a close below there to re-establish my utmost confidence in shorts. It’s also a good entry point for someone who is not in this trade.

At the same time, I have to be prudent and protect my profits. I’m putting a stop at the Feb. 16 high of 1.0052, locking in a roughly 100 pip profit.

I’m patient with trades that are in the money, but five-weeks is a long time even if the carry is positive. The run ups in oil and stocks haven’t been the negative shocks I expected for this pair.

The upcoming LTRO is a major event risk and I am expecting major volatility. If I get stopped out here, I will look to establish yen shorts as that is a trade I have been pushing for the past three weeks.


Fleshing out USD/CAD

I’m torn about USD/CAD.

For months, I’ve been looking to buy any weakness in the pair but the daily chart has broken a ‘wedge’ pattern to the downside.

My base case if for a rally to 1.12 around mid-year but I won’t fight the technicals.

It’s time to take a step back and evaluate.

Some of the reasons for my expectations for a rally:

1)      Interest rate differentials. The BOC has held rates at 1.00% since Sept. 2010. If any economic weakness materializes, a drop back to 0.25% is likely. The Fed, meanwhile, is already at zero and policymakers have set a high bar for QE3.

2)      Commodity prices. It’s not shaping up to be a good year for commodities, especially if gold is excluded. Europe is headed toward recession, US construction is virtually nil and China’s growth is slowing. These factors may be priced in but I still see downside, especially with the risks from banks, brokerages and fund redemptions.

3)      The threat of crisis. The longer the world remains at the edge of the abyss, the more likely it is that something pushes it over the edge. Europe, China, the US, the Middle East, Russia – each presents a multitude of risks in 2012.

4)      US growth may see USD gains. We know that the USD will outperform CAD on safe haven trades but surprising US growth will not necessarily flow into commodities. If growth is driven by tech and the automotive sector, Canada may be left out.

5)      There are risks in Canada. Housing prices in Canada have detached from reality. Several provinces are nearing budget crisis. Trade disputes are a risk. RIM is probably done.

But that is all old news. Here is some of what has me worried.

1)      Oil. The tension in Iran is once again solidifying Canada as North America’s oil supplier. It is also driving up prices. With investment returns at nearly zero everywhere, some big money might flow into Alberta oilsands.

2)      US stimulus. I often repeat: the US will never do austerity. Instead, more spending is likely on the way, with commodity-intensive infrastructure projects likely to benefit. At the same time, such projects will keep the US deficit high, removing any USD benefit.

3)      A US bank failure (but not a crisis). After what happened at MF Global, it’s clear that nothing has changed. I wouldn’t be surprised to see a blowup at a major US financial this year. The surprise is that it will be quickly contained by the government (perhaps before the news even hits the market) and that would weigh more on USD, especially once talk of regulation re-ignites.

4)      Growth. Canada historically lags US growth. If the US posts a strong first half, there will be a lag before the market appreciates that growth will spill over to Canada.

5)      Mark Carney (BOC Gov). He seems to have a good sense of the risks facing Canada and has consistently fretted about housing. If the US starts to grow, he will beat the Fed on raising rates. If the US falters moderately, he may sacrifice rate cuts in order to control housing inflation.

I’m going to let it sink in for a few days but I’m on guard to sell soon, likely on a break of 1.0050.


Quiet day favours further risk appetite

I have to score the ho-hum day in markets on Friday as a win for the bulls. I expected a further pullback in risk sentiment, especially with the soft Italian bond auction. My feeling is that this means EUR/USD is on its way to 1.44 and USD/CAD down to 0.9800.

I live blogged all day Friday at ForexLive so some expanded thoughts are there. My end-of-day comments are at Intermarket Strategy.


Not Reaching for the Falling Knife

The news was bang on consensus. The EFSF, bank capital and the Greek haircut were all in line with what everyone was expecting yet markets have reacted as if hit by a bolt of lightening.

To some extent, I get it. I was evidently one among many who thought European leaders wouldn’t be able to pull it off – the boat was tilted far too heavy to that side and the reckoning is here.

That’s not to say there aren’t risks. Nothing has been finalized and the devil is always in the details.

I’m of the firm belief that economic growth will continue to disappoint. Even today’s GDP report showed the rise in consumer spending tilted towards healthcare and utilities at the expense of the savings rate, suggesting the consumer is tapped out for everything but the essentials.

The Bank of Canada took a dovish approach this week and the ECB and RBA may both cut in the week ahead. There is a tremendous opportunity to short CAD, EUR and AUD today and those would be my three favourite trades. But there is no rush, I have little doubt that selling EUR/USD at the tail end of US trading today would yield an easy 70 pips, but let’s see if we can set-up for something more.

The dollar was the worst performer, followed by the yen. The Swiss franc led, followed by the euro.

Of all the strange things today, the CHF rally is the strangest. How on earth is CHF rallying in all this? The only answer is that the SNB sold some of their euros into the rally.

The first chart to check out is AUD/USD. If anything is overbought, it’s this. The resistance at 1.0764 is a stop that makes for a good short-term sell.


Buying USD/CAD longs is the trade I’m looking for right now but if I had a gun to my head, I would be selling because 0.9800 looks like it’s coming.

Finally, I can’t say that I’m crazy about the euro. The ECB is probably going to cut rates tomorrow but with the momentum the way it is, any short for more than a 70 pip move is too risky.








Trade Review: AUD/CAD (+311 pips)

Entered AUD/CAD long at 1.0248 on 12 Aug added on Aug 15 at 1.0295. Exited 23 Aug (+147 pips) at 1.0395 and 30 Aug (+164 pips) at 1.0459. Result: +311 pips.

Entered with a stop at 1.01 and a target of 1.05. Greatest open loss: 80 pips Greatest open gain: 340 pips.

Technicals were the primary driver for a long AUD/CAD entered on Aug. 12. The weekly chart caught my attention due to the dragonfly reversal. I also noted how rate hikes were overpriced in Canada.

My full reasoning was here

I noted that my next best idea was short CHF/JPY and that would have also been an excellent trade that was never in a negative position and gained as much as 600 pips in the same time frame.

After the break of 1.03 on Aug 14, we waited for a pullback and doubled our long position at 1.0295.

On Aug. 17 we noted there was no reason to take profits but the pair went on to post its worst one-day performance of the trade, falling 100 pips.

Despite this, we remained confident and felt a bounce to 1.03 (at least) was about to happen.

We went back to the weekly chart on Friday and it continued to look lucrative.

On Aug 22 we were rewarded with a surge to 1.04. We accurately saw this as a great time to take some profits. This allowed us to hang onto the second part of the trade for an additional 60 pips (above where we sold the first unit).

What I’ve learned: I may have rushed into buying the second unit after the break of 1.03. As we saw, there was a deeper pullback than I anticipated and this was the only time I was nervous about the trade. I targeted 1.05 so I may have exited the trade too soon. The weekly chart looks like it will get to at least 1.0550 but I’m nitpicking at a great trade.


What I’m happy about: Lots. I saw a lucrative pattern on a weekly chart and hung onto the trade for close to three weeks. The thing I’m most proud of is the way I sold the first part of the trade at the perfect time, nearly nailing the top on the bounce over 1.04 and locking in a nice profit that allowed me to easily wait out the next run toward the ultimate target. Opening a trade with two units or adding a second unit early on is my favourite manner of trading because it gives me this flexibility. I’m also pretty happy about noting that short CHF/JPY was my second favourite idea.









Sold AUD/CAD at 1.0459 (+164 pips)

We’ve wrapped up a great AUD/CAD trade by taking profits on the second part at 1.0459 for a gain of 164 pips. We sold the first part on Aug. 23 for a gain of 147 pips. The combined net gain of the trade was 311 pips. For those with interest earning accounts, this trade would have also provided positive carry for 18 days.

This was our only trade of the month and we loved every minute of it. We avoided the volatility elsewhere and were holding a profitable position nearly every day.

The trade was based on the weekly chart that we posted here and at chart.ly. We pointed out the dragonfly reversal and a noted that it pointed to a re-test of 1.05.

AUD/CAD reached as high as 1.0480 yesterday and has been up for four consecutive days. We may see another 40-60 pips of immediate upside in this trade but we’re now growing more bearish about the global economy and are looking to put on some trades reflecting that. We expect to see some sort of spike higher in risk trades followed by a reversal in the next day our two. Follow @FX_Button for all the trades.

I want to let this trade sink in and I will have a full review with charts tomorrow.