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By Dean Popplewell

The loonie was able to print fresh highs this week ($1.0842), mostly supported by the uptick in commodity prices, specifically crude, on supply concerns from any geo-political fallout in the Middle East. Also aiding the CAD was the weakening EUR on the crosses.

On Thursday, Governor Poloz, commenting on the semi-annual Financial System Review, assessed risks roughly the same for Canada. Despite China's shadow banking issues raising risks for trade, they seem to be offset by lower eurozone risks. He acknowledged the downside risks to inflation and commented on the continued risks in the Canadian housing market. To many, there is a concern that Canada's low rate environment has "become a curse" to the housing market. Even a small change higher in Canadian o/n rates could have a massive impact or drag on Canada's economic performance.

Friday's Canadian manufacturing release was stronger than the April headline would suggest. Sales value dropped -0.1% vs. the expected +0.5% gain. However, sales were up in two-thirds of the 21 sub-categories (+0.4%), which would suggest that the headline drop was driven by a drop in "prices." April's producer price report reveals that prices fell for primary metals, chemical and energy products.

Dealers have seen some "real money" pulling out of USD/CAD over the past 24 hours, saying that only "must do stuff" seems to be going through. The reason - a possible concern over CAD valuation. There were rumors that the Province of Ontario would be downgraded on the back of the majority Liberal win in Thursday's provincial election. There is speculation that the Liberals will be in power to launch an aggressive spending plan. Assumptions like this will push the USD higher.

The loonie has been climbing outright since March, moving from $1.13 to just above $1.08. Currently EUR/CAD offers parked near €1.4730-50 and dollar offers of $1.09 will provide some resistance.

On tap for next week:

Central Bank rhetoric again takes center stage, followed closely by UK and Canadian inflation reports. The start of the week we get the release of the Aussie Monetary Policy meeting minutes. In hot pursuit on Wednesday, the FOMC delivers its economic projections and statement followed by a press conference. The SNB fixes its Libor rate on Thursday - no change expected. Ending the week from a central banksperspective will be the BoJ's Governor Kuroda speaking Friday morning.