USD/CAD - Exchange Rate at 2-Mo. Lo

The Canadian dollar continues to do well, not just against a weak U.S. dollar but also holding up against the stronger Australian and New Zealand dollars. NYMEX crude rose $1.50 per barrel to a 2 ½-year high of $59.92 on Tuesday and after slipping a little to $59.55 yesterday, is back up at $59.78 this morning. Ineos said the 450,000-bpd Forties Pipeline System in the North Sea, which shut nearly two weeks ago due to a crack at a section near Aberdeen, Scotland, would be fully back in service by early January. Libyan officials said their export crude pipeline shut on Tuesday after an explosion will be repaired in a week's time. For the moment, however, supply pressures continue and the cold snap which has pushed natural gas to a three-week high has helped support crude prices too.

The technical picture has definitely shifted in the loonie’s favour. On both November 9 and December 4, USD/CAD closed in the $1.2670’s before bouncing higher. Yesterday in North America, it broke decisively below this level and closed well below it, making the technical picture far more bullish for the Canadian dollar. As markets begin to thin for the New Year, there’ll be an obvious reluctance to commit fresh investment capital just yet and some of the 'fast money' traders will doubtless be wary of getting hurt just as they were 10 days ago on the break up through $1.2905 U.S. Nonetheless, the loonie does appear to be in much better shape now and it will be a currency to keep a close eye on in the first few days of 2018.

The Canadian dollar opened in North America this morning at a two-month low (CAD stronger) of $1.2615 U.S.with GBP/CAD at $1.6940 and EUR/CAD at $1.5045.

USD/CAD: Expected Range $1.257 -- $1.2635

The euro finished higher against a generally weak U.S. dollar on Wednesday but did no better than hold its own against the pound sterling while falling against the Australian, New Zealand and Canadian dollars. It rose to a best level of $1.1907 before again settling back to the high $1.18’s U.S. The weakness of the U.S. dollar overnight has pushed EUR/USD back up to $1.1945; not only its highest level this month but the best since November 27.

The European Central Bank’s Monthly Economic Bulletin expands on the thinking outlined in the latest staff projections presented at the last Council Meeting. It is perhaps the most upbeat assessment in recent memory. The euro-area economic expansion continues to be solid and broad-based across countries and sectors. Real Gross Domestic Product growth is supported by growth in private consumption and investment as well as exports benefiting from the broad-based global recovery. The latest survey results and incoming data confirm robust growth momentum in the near term. Compared with the September 2017 ECB staff macroeconomic projections, the December 2017 projections revised the outlook for GDP growth upwards substantially. Euro-area real GDP is foreseen to grow by 2.4% in 2017, 2.3% in 2018, 1.9% in 2019 and 1.7% in 2020.

Tempering the economic optimism somewhat, an opinion poll published in Die Welt newspaper on Wednesday showed that if Angela Merkel becomes German chancellor again, 47% of respondents wanted Merkel to step aside before 2021, when her fourth term would end - up from 36% in a poll taken at the beginning of October. By contrast, only 36% want her to serve a full four years, compared to 44% three months ago. Meantime, a poll in Bild magazine put Merkel’s conservatives up two points at 33% and the SPD down 0.5% at 20.5%. The far-right Alternative for Germany (AfD) which entered parliament for the first time in September, was down one point at 13%.

For today, the euro opens in North America this morning at $1.1930 U.S. and $1.5045 Canadian.

CAD/EUR: Expected Range $0.663 -- $0.6665

The pound had a day of two halves on Wednesday in the Northern Hemisphere. In London trading, the pound moved sharply higher once stops were hit around last Friday’s intra-day high of $1.3390. GBP/USD reached a best level of $1.3425 before giving back almost all the gains in the North American time zone. Overnight, as the U.S. dollar hit a fresh three-month low, GBP/USD reached a best level of $1.3454, though the pound is otherwise mixed: up against the Australia, unchanged against the euro and Canadian dollar and lower versus the New Zealand dollar.

The latest figures on U.K. housing market activity released this morning were pretty depressed. British banks approved the fewest mortgages in 15 months in November, when the Bank of England raised interest rates for the first time in more than a decade. Banks approved 39,507 mortgages for house purchase last month, down from 40,417 in October and 5% fewer than in November 2016, trade association U.K. Finance said.

More comprehensive lending figures from the Bank of England are due next Thursday and despite the Chancellor’s attempts to boost the number of first-time property buyers, it is very unlikely there will be any significant pickup, if at all, until the Spring.

The pound opened in North America this Thursday morning at USD$1.3435, EUR1.1265 and CAD$1.6940

CAD/GBP: Expected Range $0.5855 -- $0.591

The Aussie dollar has had a very good post-Christmas run. Boxing Day saw AUD/USD hit a high of $0.7730 - its best level in two months. Yesterday during the New York morning, the pair extended its gains to a near 10-week high of $0.7777 and overnight it touched $0.7807; the highest since October 24.

The price action was first driven a couple of weeks ago by a squeeze on short positions in the institutional and hedge fund community, but the Aussie has over recent days been helped by higher commodity prices. Gold has recovered almost $50 per ounce from its mid-December lows to $1,292 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 yesterday and iron ore is up almost 25% over the past two months.

It remains to be seen whether this recent strength in the AUD can persist, especially as 10-year Australian bonds now yield only 28 basis points more than their U.S. equivalents and three-month rates are only 11 bp higher. And, with higher commodities now arguably ‘in the price’ of the Australian Dollar, it’s a struggle to see where the next positive surprise might come from.

The Aussie opened in North America this morning at USD $0.7785 with AUD/NZD at $1.0990 and AUD/CAD $0.9815.

CAD/AUD: Expected Range $1.015 -- $1.0205

The New Zealand dollar 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, yesterday it extended gains to $0.7075 and overnight it has been up to $0.7096; the strongest since October 19.

Arguably there is perhaps more substance to the Australian dollar recovery than to the kiwi; higher commodity prices have helped the Aussie whereas the last Global Dairy Trade (GDT) auction just before Christmas showed prices falling by 3.9%. The average price per tonne on the GDT index was U.S. $2,969 (NZ $4,247), with the key price indicator whole milk powder (WMP) at U.S. $2,755, a drop of 2.5%. This was the fourth drop of at least 2.4% in recent months - with a fall of 2.4% on October 3, 3.5% on November 7 and 3.4% on November 21. The next GDT auction doesn’t come until the New Year and will be keenly watched for any sign of pickup in prices.

The Kiwi Dollar opens in North America this morning at USD $0.7085 with NZD/CAD at $0.8930.

CAD/NZD: Expected Range $1.1165 -- $1.225

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