Week In FX Americas - Go On, Lean On The Loonie

Includes: EWC, EWW, FXE, GLD, UDN, UUP
by: Dean Popplewell

Finally, someone is looking to "lean on the loonie." This currency is only now trying to play catch up with its antipodean foes -- the Aussie and the Kiwi. Both of those currencies have found fault with their largest trading partner, China, of late and with their own strong correlation relationship with commodity prices. The currency pairs have lost 10% in the past month alone. Mind you, the respective central banks' rhetoric has also been allowed to lend a directional helping hand.

In Canada, Friday's domestic story was the weaker-than-expected inflation (+0.2%) and retail sales reports (-0.3%). With the lack of other fundamental data published stateside, softer numbers have managed to lead the CAD astray, just shy of 1.05. Not helping the loonies' plight is the recent "spat of market volatility and sentiment" that has been driven by the Fed's transparent thoughts and copy this week.

Soft inflation (+1.1% vs. an expected +1.2%) is not just a Canadian issue -- it's a global one. This number should not be a huge shock for the new BoC Governor Polaz, who politely declined to comment on the Bank's 14-month tightening bias at his first press conference this week. However, the inflation surprises continue to run to the lower side of expectations this year. Analysts have already noted that there is no new timetable for the BoC rate hikes due to the Fed's recent moves. Today's data again confirms that the BoC should remain on hold until at least the second half of next year.