Canadian Dollar Halts Three-Day Loss as Focus Shifts Fed Policy
Comment of the Day

October 28 2013

Commentary by Eoin Treacy

Canadian Dollar Halts Three-Day Loss as Focus Shifts Fed Policy

This article by Ari Altstedter for Bloomberg may be of interest to subscribers. Here is a section
The currency fell the most last week since June after the Bank of Canada dropped a bias toward higher interest rates it had included in every policy statement for more than a year, even as it held the benchmark rate at 1 percent. The Fed, which starts a two-day policy meeting tomorrow, is unlikely to begin tapering the bond-buying program its used to lower interest rates and stimulate the economy, according to the median estimate of a Bloomberg economist survey.

Eoin Treacy's view Among Canada’s many attributes are world class industrial and energy resources, a land border with the world’s largest economy and a relatively small but educated population. However, the increasingly competitive position of both US energy resources and manufacturing relative to Canada represent a challenge. Even though the US Dollar has been comparatively weak against most global currencies, it has been relatively steady against the Loonie, not least because the interest rate differential is only 100 basis points.

The US Dollar has base formation characteristics against the Canadian Dollar and has been ranging mostly below C$1.05 since June. It continues to find support in the region of the 200-day MA on pullbacks and a sustained move below C$1.0275 would be required to question medium-term scope for a successful upward break.

The S&P/TSX Index broke successfully above 13,000 for the first time since 2010 two weeks ago and a sustained move below that level would be required to question medium-term scope for continued upside. The Index has being led higher by the banking sector, with the ratio holding a progression of higher reaction lows since late last year.

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