Tag Archives: USD/CAD

This was well-timed

This appeared in the Globe & Mail on June 9. I spoke with the about the extreme positioning in USD/CAD and how it was a signal that the speculators were about to get blown out.

USD/CAD was trading above 1.35 then. In the following 6 weeks, it fell 10 full cents.

Loonie options pricing may signal bad news for currency’s bears

 The foreign exchange options market is showing much less risk of a sharp drop in the Canadian dollar than before last November’s U.S. election, which could spell bad news for speculators who have heavily shorted the underperforming currency.

Bearish bets on the loonie ramped up in May to a record high as Canada’s largest alternative lender Home Capital Group Inc nearly collapsed in April

But short-sellers are battling a decline in volatility that has hit stock, bond and foreign exchange markets over recent months and which implies that the Canadian dollar will not fall very far. The decline in volatility could leave sellers sitting on positions that are no longer working and looking for an exit all at once if a positive catalyst for the currency emerges.

“Canadian dollar sellers are expecting an aggressive Canadian dollar move and the market is saying it is not going to happen,” said Adam Button, currency analyst at ForexLive.

Investors typically pay more in the options market for downside than upside protection in the Canadian dollar because the commodity-linked currency tends to weaken fast when appetite for risk declines.

Share

Canadian dollar continues to roll

I spoke with Reuters ahead of data on Canadian CPI and retail sales.

TORONTO (Reuters) – The Canadian dollar extended a 14-month high against its U.S. counterpart on Thursday as oil prices rose and the greenback fell against a basket of major currencies, with analysts looking to Friday’s domestic data for clues on the rally’s next move.

The loonie, as the currency is colloquially known, has strengthened steadily since June, when the Bank of Canada took a more hawkish turn, with the move getting fresh legs after the central bank hiked interest rates last week.

At the time, the central bank said it needed to look through soft inflation data and would wait for more economic data before committing to its next move, making June inflation and May retail sales data due out on Friday key to the short-term trend. ECONCA

“The Canadian dollar is riding high, but it won’t last forever, and any signs of weakness in inflation and in consumer spending could cause a sharp reversal,” said Adam Button, currency analyst at ForexLive in Montreal.

More

Share

Great move for the Canadian dollar

I spoke to the CBC on July 20 about the Canadian dollar ahead of the BOC. Everyone was saying a hike was priced in. It wasn’t.

If you’re planning a summertime trip to the U.S., keep a close eye on the loonie next Wednesday. That’s when the Bank of Canada is widely expected to increase interest rates, a move that generally attracts foreign investment and boosts demand for a currency, pushing that currency’s value higher.

The Canadian dollar was worth 77.61 cents US on Friday after rising by slightly more than 0.6 of a cent. Exactly how high could the loonie fly after the Bank of Canada makes its anticipated move?

“There’s still room for the Canadian dollar to gain,” said Adam Button, a currency analyst with ForexLive.com. Button expects the loonie to head close to 78 cents after an interest rate hike, and as high as 80 cents over the following month.

Currency traders started gaining confidence that the bank would finally pull the trigger on interest rates after reading bullish remarks in a speech by Bank of Canada senior deputy governor Carolyn Wilkins on June 12, said Button.

That confidence was reinforced by comments made by Bank of Canada governor Stephen Poloz in a June interview on CNBC, and in a recent interview with a German newspaper.

More.

Share

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.

d

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.

Share

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.

Share

Frustrated with USD/CAD

If you would have asked me what my favourite trade was at the start of September, I would have answered, without hesitation, “Long USD/CAD”.

So why didn’t I trade the pair as it rose 750 pips in the month? It was an experience in frustration as I stayed too patient and missed several opportunities. On the one hand, I’m glad I stayed disciplined and didn’t chase. On the other, I’m upset that I missed a trade where I was 100% correct and had a high level of conviction.

What can I do now but head to the sidelines? When you miss a trade, you have to completely forget about it. I’m targeting 1.14 still but at 1.05 the risks are two way. Unless I can buy at 1.03, I’m not even going to think about this pair.

Share