USD/CAD - Dollar at 10-Wk. Lows as Oil Prices Soar

The Canadian dollar had a very strong day on Thursday, equal top performer with the euro. NYMEX crude which slipped a little to $59.55 U.S. on Wednesday, is this morning up at $60.25; the highest since June 2015. Brent crude futures - the international benchmark - are also up, rising 45 cents or 0.7% to $66.61 U.S. a barrel. Brent broke through $67 earlier this week for the first time since May 2015. Since the start of the year, Brent and WTI have risen by 17% and 12% respectively, although the price rises from mid-2017 are much stronger, at nearly 50%.

As well as the supply side of the energy equation, we also have to look at demand. Our Canadian clients will need no reminder that winter can be severe. However, an arctic blast has sent most of the U.S. Northeast and Midwest into a deep freeze that has set record lows in several places. For most of the region encompassing New England, northern Pennsylvania and New York, the National Weather Service issued wind chill advisories or warnings as temperatures are expected to be below 10 degrees Fahrenheit (-15 C) in a wide area. For upstate New York, east of Lake Ontario, the NWS warned of "dangerously" cold wind chills of minus 5 F to minus 30 F through Friday, whilst Erie - a city of about 100,000 on the shores of Lake Erie in northwest Pennsylvania - is already buried under more than 65 inches (1.6 metres) from a record-breaking storm earlier this week. Wrap up warm this weekend…

We’ve been highlighting that the technical picture has definitely shifted in the loonie’s favour after the decisive close below USD/CAD $1.2760 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 10-week low (CAD stronger) of USD $1.2535 with GBP/CAD at $1.6930 and EUR/CAD at $1.5025.

On this last full working day of the year, we wish all our clients in Canada and the United States a happy, peaceful and prosperous New Year 2018.

USD/CAD: Expected Range $1.2465 -- $1.257

The U.S. dollar is once again lower. Last week its index against a basket of major currencies fell from 93.50 to 92.85 and it has now fallen every day since Christmas. After a very brief opening rally on Tuesday, the index fell to a three-week low of 92.73. On Wednesday in Europe, it traded down to 92.51; the lowest level since December 1 and yesterday in New York it hit 92.24; the weakest since September 25. After the briefest of rallies overnight in Asia, it fell further to 91.95 during the London morning.

With just one trading session left in 2017, the U.S. dollar index against a basket of major currencies is on track to lose just almost 9%; the first annual decline since 2012. Its high for the year was way back on January 3 when EUR/USD hit a low of $1.0341. Since that point, the euro is now up more than 13%, its biggest advance since 2003, and is the largest G-10 gainer against the U.S. currency this year.

Today, of all days, brings the potential for some big price swings; the end of the month, the quarter and the calendar year when global portfolio hedges are re-balanced to account for relative performance changes. To some extent the high correlation of assets across geographies should reduce the need for portfolio re-balancing but with a long weekend ahead, this may be the time for clients to lock-in their FX needs if the levels are attractive.

The U.S. dollar index opens in North America this morning at a 14-week low of 91.95. The 2017 low was 91.00 on September 5

CAD/EUR: Expected Range $0.664 -- $0.667

The euro finished equal top of the FX pile with the loonie on Thursday, rising almost three-quarters of a cent from Wednesday’s New York close to reach a high of $1.1958 U.S.; matching the best level it touched on November 27. Overnight it eased very slightly to $1.1938 before rallying back to a high of $1.1988.

The euro is the best performing major currency in 2017. In early January as worries grew about upcoming elections in the Netherlands, Austria and France and the rise of populist anti-European Union parties, there were concerns about a true existential crisis for the currency. EUR/USD hit a low point for 2017 of just $1.0341. With the resounding victory for Emmanuel Macron in the French presidential elections, it seemed, instead, that the Franco-German axis at the centre of EU politics for two generations would be strengthened and reinforced. The euro has subsequently shrugged off a poor election outcome for German Chancellor Angela Merkel and the dissolution of the Italian Parliament ahead of elections to be held in early March 2018. The economic recovery has gained traction across the whole of the EU and though inflation has not yet followed, it surely will if recent increases in energy prices are sustained.

For today, the euro opens in North America this morning at $1.1988 U.S. and $1.5025 Canadian

CAD/GBP: Expected Range $0.589 -- $0.5925

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 Australian dollar, unchanged against EUR and CAD 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 UK 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 later in the Spring..

The pound opened in North America Thursday morning at $1.3435, 1.1265 euro and $1.6940 Canadian.

CAD/AUD: Expected Range $1.016 -- $1.0235

The Aussie dollar has enjoyed a really good festive season. December 26 saw AUD/USD hit a high of $0.7730 - its best level in two months. On Wednesday during the New York morning, the pair extended its gains to a near 10-week high of $0.7777 and yesterday it touched 0.7807; the highest since October 24. Having subsequently sold off a quarter of a cent, this morning in London it is back on a 78-cent-U.S. handle with a high so far of $0.7822 U.S.

The AUD is still viewed as a commodity currency, even when it doesn’t produce some of the commodities which are going up in price! For sure, gold is up 4.1% since December 11 and iron ore is up 22% in exactly two months. Copper is up just over 12% in less than three weeks, aluminium is up 13% in just under a fortnight whilst zinc is up 7% since December 7. When commodities all rise strongly together, so too does a “commodity currency”.

There is a very wide spread of views as to what 2018 holds in store for the Australian Dollar. Morgan Stanley, for instance, sees AUD/USD at $0.67 by the end of next year while Bank of America Merrill Lynch has $0.77 and UniCredit goes for $0.82. We’d note that in an environment of generally low-asset market volatility and strongly rising commodity prices, the extra yield available in Australia looks very attractive. Experience also teaches us that it looks very attractive until it doesn’t and that reversals can be swift and sudden. No asset class is more fickle and subject to the whims of fashion than foreign exchange. As the old saying goes, "it never looks more bullish than at the top of the market".

The AUD opened in North America this morning at $0.7820 U.S. with AUD/NZD at $1.0980 and AUD/CAD $0.9800.

CAD/NZD: Expected Range $1.118 -- $1.123

The New Zealand dollar is still keeping up 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, by yesterday it had extended gains to 0.7097; the strongest in 10 weeks and overnight it has just reached a U.S.-71-cent big figure for the first time since October 18.

Whilst the gains in the Australian dollar are largely linked to commodity prices, this most certainly is not what has been driving the New Zealand Dollar higher recently. Instead it is a combination of factors: a global investor base which was running short or underweight positions in the currency after the uncertainties of the September election, the announcement of a new but highly experienced governor at the Reserve Bank of New Zealand and the extra yield available on New Zealand’s money and bond markets which looks attractive in an environment of generally low-asset market volatility.

We’d note the short position appears now to have been unwound, the change of personnel at the RBNZ is no longer news and the yield advantage in NZ is pretty slim by historic standards. This doesn’t of itself signal the top for the Kiwi dollar as momentum is itself a powerful force in foreign exchange markets. After a very strong run recently, however, clients with foreign exchange business to transact would be well-advised to think whether now is the time to lock in their FX requirements.

The Kiwi dollar opened in North America this morning at $0.7120 U.S. with NZD/CAD at $0.8925.

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