CAD falls, now playing catch-up

Despite the Loonie out performing its peers of late, the currency outright, has managed to print a fresh six-week low on the back of its neighbor's “super committee' political impasse and Europe's sovereign-debt crisis. Global uncertainty is boosting the demand for the safety of the US dollar currency and its bonds.

The CAD has firmly broken above the key 1.0280 area this past weekend and has extended higher (1.0400) in this back drop of heightened risk aversion. The currency continues to trade off global ‘toxic' themes which will likely see it test the medium technical market target above the 1.05+ handle. Month-to-date, the CAD is heading for a -3.8% drop against the reserve currency of choice, the dollar, after a report earlier this morning recorded wholesale sales rising in September less than forecasted and while commodities trade on the back-foot.

Canada's wholesale trade reported gains in “miscellaneous” and food, coupled with the beverages and tobacco categories, were offset by declines in personal and household goods and machinery. Overall, wholesale sales happened to advance +0.3%, m/m, to + $48.7b. This was its fifth consecutive monthly increase. However, the result disappointed, missing the markets expectation of +0.6% print. In volume terms, wholesale trade fell -0.5% on the month.

As we approach the 25th of the month, the market can expect some “oil settlement” sellers of dollars, however, with this shortened trading week, liquidity will remain a premium. Corporate offers remain light with option barriers currently in play above +1.04.

The loonie has depreciated -4.1% this year in the biggest drop amongst G10 currencies after Kiwi and Aussie. In contrast, JPY has appreciated +5.1%. Canadian retail sales are out tomorrow, but more attention will be paid to the US data out this week which, if positive, should benefit CAD against the crosses (1.0385).

The Aussie's woes are a mirror image of what's happening with the loonie. The currency has fallen just over -1% versus its US counterpart today, hitting a six-week low, as concerns about the Euro-zone debt crisis weighed on demand for higher-yielding currencies. Again option barriers and commodity prices falling from grace has accelerated the currency downfall towards the session's lows.

There is reported sovereign buying interest just ahead of the 0.9700 technical support, and is expected to slow and smooth selling interest. As per usual, expect corporate buying to front run “this” interest. Due to the illiquid nature of the sessions, it's reported that momentum accounts are not playing, most likely because they are already short. The market can expect real money interest to appear close to month end for rebalancing hedging purposes.

The RBA Governor Stevens is speaking this Thursday, which may provide an indication of the next policy step. Currently, the OIS market is pricing in a -33bps cut at the next meeting in December. The consensus forecast for construction output (on Wednesday) is for a +2.0%, q/q, gain in Q3, up from +0.7% previously.

The Aussie decline is due to a commodity and dollar story. The report that China may allow the AUD and CAD to be traded onshore versus the Yuan is expected to have little immediate impact. Longer term bulls are hanging in and have no interest to add until we break 1.01 convincingly again.

Other links:
US Yields Plummet, Prices Balloon