USD/CAD - Exchange Breaking down to 10-Yr. Lows

The Canadian dollar was the best of all the major currencies last week and continues to do well as foreign exchange markets return to their normal 24-hour global trading hours. We noted here yesterday how resilient the loonie had been in the face of somewhat weaker-than-expected GDP figures last Friday and it has subsequently received more support from higher oil prices. NYMEX crude rose $1.50 per barrel to a 2 ½-year high of $59.92 Tuesday on reports of an explosion on a crude pipeline in Libya and voluntary OPEC-led supply cuts. It has slipped a little to $59.55 this morning but it is still a dollar higher than at the time of the OPEC meeting at the end of November.

We are at a very interesting technical juncture for the Canadian dollar and price action around current levels could be very important. On both November 9 and December 4, USD/CAD closed in the $1.2670’s before bouncing higher. If the pair breaks this level and closes lower today, the technical picture will turn far more bullish for the Canadian dollar.

The Canadian Dollar opened in North America this morning at a two-month low (CAD stronger) of $1.2630 U.S. with GBP/CAD at $1.6945 and EUR/CAD at $1.5030.

USD/CAD: Expected Range $1.257 -- $1.269

The U.S. Dollar continues to slip gradually lower. Last week its index against a basket of major currencies fell from 93.50 to 92.85 and its fall has continued in this Christmas-thinned week. After a very brief opening rally on Tuesday, the index fell to a three-week low of 92.73 and this morning in Europe it traded down to 92.55; the lowest level since December 1.

The move lower comes even as U.S. yields continue to creep higher across all points on the maturity spectrum. Two-year notes now yield 1.92%, 10-year Treasuries are at 2.47% and the 30-year long bond is at 2.82%. For sure, the equity market didn’t rise Tuesday but this isn’t yet flashing a red warning light for the dollar. If we look at the S+P 500 index futures contract, this hit an intra-day high of 2,694 back on Tuesday, December 19. The peaks of last Wednesday and Thursday failed to take the index back to this level and it closed the week 10 points off the high at 2,684. Yesterday’s low was 2,679 but the big level to watch is last Thursday’s 2,678 low. If we see a break and a close below this level, then the technical picture turns much more negative in the short-run and will raise fears of a return to the post-Federal Open Market Committee low around 2,650.

There were some U.S. economic statistics released yesterday. The 20-city house price numbers published by S&P/CoreLogic showed the annual rate of growth around 6.2%, though 16 of 20 major U.S. cities experienced home price growth of 5% or higher: double the pace of average wage growth. Seattle prices rose almost 12.5% in the year to October whilst Las Vegas grew 10.2%. Later today, we’ll have consumer confidence, then the advance goods trade balance, weekly jobless claims and Chicago NAPM on Thursday.

The U.S. dollar index opens in North America this morning at 92.55.

CAD/EUR: Expected Range $0.6675 -- $0.668

The euro is higher against a generally weak U.S. dollar this morning but has done no better than hold its own against the pound sterling while falling against the Australian, New Zealand and Canadian dollars. It has remained on a $1.18 U.S. big figure ever since 6am local time on Tuesday December 19, having traded up to a best level in Europe today of $1.1897 U.S. The Single European Currency still seems a favourite pick for 2018 for a wide range of FX strategists and analysts but one of the main questions in the near-term is the extent to which this is already reflected in investor positioning. A very interesting Bloomberg analysis of the EUR/USD options market yesterday reflected a 75% probability that the pair will reach $1.2170 by end-2018, a 67% probability of $1.2290 and a 50% probability of $1.2560.

The European Central Baml publishes its monthly Economic Bulletin tomorrow and it will be interesting to see how much weight, if any, it places on recent economic developments in Spain. Thousands of businesses, including major banks and energy firms, have moved their headquarters out of Catalonia and, as it accounts for around 19% of Spanish Gross Domestic Product, the economic uncertainty is weighing down on activity. The Organization for Economic Co-Operation and Development, for example, now forecasts GDP growth of just 2.3% in 2018 after 3.0% in 2017. The country accounts for around 11% of euro-zone GDP and is the fourth largest country after Germany, France and Italy.

The euro opened in North America this morning at $1.1895 U.S. and $1.5025 Canadian.

CAD/GBP: Expected Range $0.5855 -- $0.592

Having closed last week around $1.3365 U.S., the British Pound initially fell to the low $1.3350’s at the start of Tuesday’s New York trading before rallying up to a high of $1.3387. The overnight session in Asia was pretty quiet, but in London this morning the sterling moved sharply higher once stops were hit around last Friday’s intra-day high of 1.3390. GBP/USD is now on a $1.34 big figure for the first time in a week.

For many people in the U.K., the best part of the festive break between Christmas and New Year is the absence of Brexit negotiations. The seemingly interminable rows between Government and Opposition parties have been temporarily suspended, whilst talks between the U.K. and European Union don’t restart for several weeks. That said, the Chancellor is being pressed to publish documents after he told the Treasury select committee earlier this month that the government had "modeled and analysed a wide range of potential alternative structures between the European Union and the United Kingdom".

It is to be hoped any documents are more informative than the so-called sectoral studies which the Minister for Exiting the European Union published just before Christmas. As economic analysis, they were utterly useless. For comedy value, they were wonderful. On fishing, for example, we learned that, "As an island nation, the UK has been dependent on the sea for its trade and defence throughout history, and strong traditions of seafaring can be traced back hundreds of years… There is a concentration of activity in coastal towns." We’ll leave our readers to reflect upon this insight, and to wonder where else, other than coastal towns, a fishing industry might be based…

The pound opens in North America this Wednesday morning at $1.3415 U.S., $1.1280 euro and $1.6950 Canadian.

CAD/AUD: Expected Range $1.013 -- $1.022

The Aussie dollar opened the first day after Christmas in pretty good shape and a late rally saw AUD/USD hit a high of $0.7730; its best level since October 25. Overnight, it has done even better, notching up more gains even as its cricketers collapsed in the fourth of a five-match series against the touring English side. During the European morning today, AUD/USD hit $0.7777 with AUD/CAD up around 20 pips to $0.9825.

Although to some extent the price action seems to reflect a continued squeeze on short positions in the institutional and hedge fund community rather than any fundamental reappraisal of the currency, the AUD has been helped by higher commodity prices. Gold has recovered almost $50 per ounce from its mid-December lows whilst the price of three-month copper on the London Metal Exchange rose to a three-and-a-half-year high of $7,201 a tonne and iron ore is up almost 25% over the past two months. It remains to be seen whether this recent strength in the Aussie can persist, especially as 10-year Australian bonds now yield only 24 basis points more than their U.S. equivalents and three-month rates are only 11 bp higher.

The Aussie opened in North America this morning at $0.7770 with AUD/NZD at $1.0990 and AUD/CAD $0.9815.

CAD/NZD: Expected Range $1.1125 -- $1.123

We’ve now had fully 36 hours of post-Christmas trading in the New Zealand Dollar and it has largely kept pace with the strength in its Aussie cousin with the AUD/NZD cross in a $1.0970-$1.1000 range since Friday last week. NZD/USD reached a best level of 0.7040 on Tuesday and this morning in Europe has extended its gains to a high of 0.7075; its highest since October 19.

Yesterday there were reports of a 4.2 magnitude earthquake which was felt in Marlborough and the Wellington region. This follows a 3.8 magnitude quake at 7.17 p.m. on Tuesday around 10 kilometres south-west of Wellington that was felt by more than 4,000 people. Mercifully, both of these tremors were light by recent standards and no injuries to people or severe damage to property have thus far been reported.

Overnight, we’ve had some data on electronic spending which showed sales on Boxing Day up 6.4% this year, led by growth in department stores, appliance stores and home decorating, according to local payments company Paymark.

The Kiwi Dollar opens in North America this morning at $0.7070 U.S. with NZD/CAD at $0.8930 U.S.