Canadian
Dollar Trades Lower
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Canadian
Dollar Lower as Commodities Fizzle
The Canadian dollar is trading
at a one-week low this morning as it grinds down toward the lower end of
its five-month trading range. The dollar has given up 40 basis points
overnight to trade in the low 98-cent range. There is no Canadian specific
news to account for the downward drift in the dollar, rather, with the
Australian and New Zealand dollars also modestly lower this morning, it
looks like the market is lightening up on the commodity related
currencies. We have been calling for a correction to commodity prices for
some time and expecting the Canadian dollar to trade lower if and when in
fact commodity prices do come off. So far commodities are holding up
pretty well with the CRB index down just 4.7% from its March 14th high of
420. With the US economy in recession and signs of economic slowing
elsewhere in Europe and Asia, there is a strong possibility commodity
prices have peaked and will drift lower over the coming months.
There does tend to be some
seasonality to commodity prices as they typically enter a period of
weakness in the spring or early summer – hence the saying with Canadian
stocks, “sell in May and go away”. Commodity prices have staged a nice
little rally over the past two weeks but it looks like the momentum behind
the move is waning and maybe we are seeing early signs of further price
weakness. If so, and depending on how the US dollar behaves over the
coming months, the Canadian dollar could continue to drift lower and test
support at 97 cents.
US Dollar
Weaker After FOMC Minutes
Other than against the commodity
sensitive currencies, the US dollar is broadly lower this morning. The
minutes from last month’s FOMC meeting were released yesterday afternoon
and the dollar has traded with a softening tone as expectations mount that
the US Federal Reserve could possibly cut interest rates another 50 basis
points at the end of this month. The minutes revealed that the Fed remains
very cautious of the US housing and credit markets and remains on guard to
deal with a protracted economic downturn. The interest rate futures are
now pricing in a 44% chance of a 50 basis point cut on April 30th. The Fed
has already cut rates 3% since mid-September to take the overnight lending
rate to 2.25%. With 3-month US T-Bills yielding just 1.33% and the
two-year note at 1.82% the market is telling the Fed that rates have to go
even lower and the Fed is likely to deliver another dose of monetary
easing. It will be interesting to see what happens to short-term yields
once the Fed Funds rate is cut. If they hold at current levels, that will
signal the end of the easing cycle and probably the bottom for the dollar
for now.
Other
News
In other developments, the Bank
of Japan kept it’s overnight lending rate at 0.50% and lowered its
domestic economic outlook given declines in business sentiment and
industrial production. The yen looks comfortable in the 102 to 104 range.
Equity markets were weaker in Asia and Europe overnight but have opened to
the topside in North America on news that Citigroup is in discussions to
sell $12 billion of leveraged bonds to shore up its balance sheet.
Commodity prices have been subdued this morning. Oil has traded in a $1
range between $108 and $109. Gold has traded as low as $905 but has just
bounced to the $917 level as the US dollar has come off.
US Dollar
Predictions: A Special Industry Report from Custom House
A Special Report out this week from Head Foreign Exchange Trader at Custom
House, Mark Frey, on updated predictions for the US Dollar. Find out the
latest news and implications associated with the US economy and the USD.
Learn where the Dollar is expected to head and the ripple effect to be
felt throughout many industries.
Key highlights:
-
The Dollar’s performance so
far in 2008
-
Federal Policy & the credit
crunch
-
Domestic economic conditions
-
Commodity pressures
-
The U.S. trade deficit
-
Exchange rate flexibility in
China
-
The Dollar in the Middle East
-
The Dollar’s forecast for the
end of 2008
Download the PDF Report Now
Paul Lennox, CFA, Corporate Treasurer
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