Week in FX Americas - Loonie Bleeds On Growth Risks

• Commodity currencies strength an aberration
• Euro asset liquidation has supported higher yielding currency pairs
• Central Banks front and center next week

It was too good to be true for the loonie. With commodities under pressure it has been somewhat of an aberration to see commodity and interest rate sensitive currencies like the AUD, NZD and CAD holding it together for so long.

While gold, crude, and other natural resources have been taking a beating, the actions of Central Bank reserve diversification for a time has been providing a bid for these currencies in particular.

For some time, global investors have been merely liquidating some of their Euro holding and have sought sanctuary in the AUD, CAD and NZD – hence the bid of late. However, some good things do come to an end. Earlier this week, dovish remarks from Governor Wheeler finally put a halt to the Kiwi’s bid. Next week Governor Stevens at the RBA will get the same opportunity again to talk his Aussie dollar down, a tactic that he has used to good effect so far this year.

Canadian GDP disappoints

The Loonie does not have to wait for the BoC. The loonie got its comeuppance on the last day of October when Canada’s GDP shrank -0.1 m/m, unexpectedly in August for the first-time since the end of last year, dragged by lower energy and manufacturing output. The decline marks the second consecutive disappointing month after output stalled in July and according to analysts the worst back-to-back showing in nearly two-years. The year-on-year pace has slowed to +2.2% from +2.5% in July.

The disappointing news has proven pretty disruptive for the loonie with USD/CAD rising to an intraday session high above the psychological $1.1300 to just shy of $1.1320. Prior to the announcement the loonie has been chopping around in a broader range influenced mostly by the “big” dollar exploits after the FOMC completed QE3.

Despite a plethora of corp U.S dollar sale orders been chopped through, more CAD buying interest is located just above this mornings USD/CAD highs, stacked between $1.1325-50. Once through here there will be a splattering of stop-loss USD/CAD buy orders to contend with, right up to the next big figure $1.1400. Currently the weak CAD trend remains your friend and on a USD pullbacks there will a plethora of interest to again own the “bigger” buck.

No soft landing for crude and gold

There is little love for either crude oil or gold prices. December oil futures have so far avoided a new floor today following the surprise stimulus measures from the BoJ in the overnight Asian session. Nevertheless, it did manage to break the $80 at the lows and is firmly set to end this month on a weak note. The weekly and monthly bear trend would suggest that most investors are firmly sitting in the sell any rally boat.

Gold got the worse of it and has broken sharply ($1,166 down $32) in the face of the BoJ’s stimulus surprise and as equities and the mighty buck surge. With a new month and new week on the horizon, new support levels have had to be recalibrated after todays plunge – technical support now starts at $1,1140 and $1,1133. The market will surely be looking at the much bigger move sub-$1,100 handle over the coming weeks.

Next Week for the Americas:

Central Banks will continue to dominate the landscape. The RBA will put the market through its paces come November 3. Governor Stevens has a tendency to try and talk the Aussie dollar down at every opportunity. Perhaps he will try and match his colleague at the RBNZ who did a good job walking the Kiwi down earlier this week. Both the BoE and ECB will be keeping the market on their toes come November 6. Will we get further clarification on their ABS program? For the sovereignty issue, expect that to be delayed until the EU political quagmire unravel. Finally, the market will close out the week with U.S and Canadian employment numbers. Ms. Yellen and her colleagues changed tact and pumped up the U.S labor situation. What’s NFP going to do for the dollar? No matter what, the market will be on tenterhooks come Friday.

WEEK AHEAD

• USD ISM Manufacturing
• AUD Reserve Bank of Australia Rate Decision
• NZD Unemployment Rate
• AUD Unemployment Rate
• GBP BOE Asset Purchase Target
• GBP Bank of England Rate Decision
• EUR European Central Bank Rate Decision
• USD Change in Non-farm Payrolls
• CAD Unemployment Rate