Canadian Dollar and Yields Jump as Inflation Spurs Hike Bets
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“This data is strong across the board and will support the aggressive pricing for BOC tightening,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse Securities in New York. “We remain fundamentally bullish on the loonie, as per our three-month forecast of C$1.25 against the U.S. dollar, but I must confess I am a little surprised at how fast we are approaching that level, given the highly asymmetric nature of the potential outcomes” from next month’s Nafta negotiation round, he said.
The loonie strengthened as much as 1.1 percent to C$1.2700 per dollar and was at C$1.2711 as of 1:05 p.m. in Toronto, having blasted past its 50-day moving average of C$1.2748. The currency extended its year-to-date gain to 5.7 percent, on track for its best annual performance since 2009. The yield on the country’s two-year note advanced five basis points to 1.68 percent on Thursday.
The greenback-loonie pair could easily slip back to slightly above C$1.26 in the next week or so and could make one last push higher after the January BOC meeting because talk of a hike then looks premature, said Shaun Osborne, chief foreign- exchange strategist at Bank of Nova Scotia. But in his view a BOC hike in March or April looks “quite possible,” the U.S.
The Canadian Dollar accelerated to its early 2016 low before bouncing along with the commodity sector. It gave up about half the advance over the balance of 2016 and into 2017, before rallying powerfully again to break back above the trend mean and post a new recovery high. It is now firming from the region of the trend mean and a sustained move below 78¢ would be required to question medium-term scope for additional upside.
Brent Crude is testing the upper side of a six-week range and reactions since June have been limited to less than $5. A sustained move below $60 would therefore be required to question current scope for additional upside.
The S&P/TSX Materials Index has been ranging since mid-2016 but is firming from above the psychological 2000 level at present and a clear downward dynamic would be required to question medium-term scope for additional upside.
Canadian 10-year yields have been trending higher for a year and bounced over the last couple of weeks from the region of the trend mean.