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USD stronger as oil and Loonie consolidate

Published May 24, 2016
  • The U.S dollar is stronger against the majors this morning as it continues to benefit from renewed bets that the Fed may be on track to raise rates as early as June
  • The Australian dollar was the weakest performer overnight after the Reserve Bank of Australia (RBA) stuck to its guns on ambitious inflation targets, fuelling risk of another rate cut this year
  • AUD lost over 1% against the USD and dragged the NZD and CAD lower along with it overnight – the Loonie traded to a seven week low during the European AM before reversing course
  • Oil prices were soft through Asian and European trade, although they have moved higher as North America gets under way as WTI trades at $48.30 for a gain of 0.6%
  • There are lots of data from the U.S and Canada this week, highlighted by U.S GDP on Friday and the Bank of Canada meeting on Wednesday
  • Recent data from Canada has been poor and the wildfires in Alberta have curtailed oil production and are expected to shave 1% off Q2 GDP – this will make it difficult for the BoC to sound optimistic about the economy and we expect a very neutral to dovish tone from Governor Poloz
  • Corporate hedgers should note that there are three major risks approaching in June: The OPEC meeting June 2, FED decision June 15th, and the UK ‘Brexit’ referendum June 23rd
  • All have the ability to whipsaw currency valuations in either direction and are very difficult to prepare for, so a certain degree of protection for upcoming FX cash flows would be prudent

USDCAD Technical Glance
USDCAD remains in an upwards trend with the balance of risks favouring the USD.  Yield spreads and technical indicators point to further USD gains.   A close below the 21 day moving average would be needed for sentiment to change.